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AMENDMENT RIGHTS OF GOVERNMENT c ^ 
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HEARING 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON 

GOVERNMENT OPERATIONS 

HOUSE OF REPRESENTATIVES 

NINETY-EIGHTH CONGRESS 

FIRST SESSION 



MARCH 1, 1983 



Printed for the use of the Committee on Government Operations 




ADMINISTRATION PROPOSAL THREATENS FIRST 

AMENDMENT RIGHTS OF GOVERNMENT 

GRANTEES AND CONTRACTORS 



HEARING 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON 

GOVERNMENT OPERATIONS 

HOUSE OF REPRESENTATIVES 

NINETY-EIGHTH CONGRESS 

FIRST SESSION 



MARCH 1, 1983 



Printed for the use of the Committee on Government Operations 




U.S. GOVERNMENT PRINTING OFFICE 
20-644 O WASHINGTON : 1983 



COMMITTEE ON GOVERNMENT OPERATIONS 



JACK BROOKS, 



DANTE B. FASCELL, Florida 
DON FUQUA, Florida 
JOHN CONYERS, Jr., Michigan 
CARDISS COLLINS, Illinois 
GLENN ENGLISH, Oklahoma 
ELLIOTT H. LEVITAS, Georgia 
HENRY A. WAXMAN, California 
TED WEISS, New York 
MIKE SYNAR, Oklahoma 
STEPHEN L. NEAL, North Carolina 
DOUG BARNARD, Jr., Georgia 
BARNEY FRANK, Massachusetts 
TOM LANTOS, California 
RONALD D. COLEMAN, Texas 
ROBERT E. WISE, Jr., West Virginia 
BARBARA BOXER, California 
SANDER M. LEVIN, Michigan 
BUDDY MacKAY, Florida 
MEL LEVINE, California 
MAJOR R. OWENS, New York 
EDOLPHUS TOWNS, New York 
JOHN M. SPRATT, Jr., South Carolina 
JOE KOLTER, Pennsylvania 
BEN ERDREICH, Alabama 



Texas, Chairman 

FRANK HORTON, New York 

JOHN N. ERLENBORN, Illinois 

THOMAS N. KINDNESS, Ohio 

ROBERT S. WALKER, Pennsylvania 

LYLE WILLIAMS, Ohio 

WILLIAM F. CLINGER, Jr., Pennsylvania 

RAYMOND J. McGRATH, New York 

JUDD GREGG, New Hampshire 

DAN BURTON, Indiana 

JOHN R. McKERNAN, Jr., Maine 

TOM LEWIS, Florida 

ALFRED A. (AD McCANDLESS, California 

LARRY E. CRAIG, Idaho 



William M. Jones, General Counsel 

John E. Moore, Staff Administrator 

Donna Fossum, Professional Staff Member 

John M. Duncan, Minority Staff Director 



Legislation and National Security Subcommittee 

JACK BROOKS, Texas, Chairman 

DANTE B. FASCELL, Florida FRANK HORTON, New York 

DON FUQUA, Florida JOHN N. ERLENBORN, Illinois 

ELLIOTT H. LEVITAS, Georgia WILLIAM F. CLINGER, Jr., Pennsylvania 

HENRY A. WAXMAN, California DAN BURTON, Indiana 

STEPHEN L. NEAL, North Carolina 
TOM LANTOS, California 

Richard C. Barnes, Staff Director 
Cynthia W. Meadow, Professional Staff Member 



(II) 



CONTENTS 



Page 

Hearing held on March 1, 1983 1 

Statement of — 

Biddle, A. G. W., president, Computer & Communications Industry Asso- 
ciation 252 

Bothwell, Robert O., executive director, National Committee for Respon- 
sive Philanthropy 283 

Botwinick, Michael, director, Corcoran Gallery of Art, Washington, D.C.... 147 

Bowsher, Charles A., Comptroller General of the United States, accompa- 
nied by Milton J. Socolar, Special Assistant to the Comptroller General. 57 

Brooks, Hon. Jack, a Representative in Congress from the State of Texas, 
and chairman, Legislation and National Security Subcommittee: Open- 
ing statement 1 

Bucy, June, chief executive officer, the National Network of Runaway 
and Youth Services, Inc 154 

Clayman, Jacob, president, National Council of Senior Citizens 298 

Cooper, Maudine R., vice president, National Urban League 116 

Daoust, George A., Jr., executive director, National Council of Technical 
Service Industries 182 

Deans, Thomas S., executive director, Appalachian Mountain Club 135 

Frank, Hon. Barney, a Representative in Congress from the State of 
Massachusetts 70 

Jones, Donald G., executive secretary, Wisconsin Community Action Pro- 
gram Association, Inc., Madison, Wis 235 

Kemp, Evan J., Jr., executive director, Disability Rights Center, Washing- 
ton, D.C., Disability Rights Education and Defense Fund, Inc., accompa- 
nied by Bonnie Milstein, attorney, Center on Law and Social Policy 194 

Kerschner, Paul A., associate director, division of legislation, American 
Association of Retired Persons 140 

Kessler, John D., vice president for public affairs, American Heart Asso- 
ciation 294 

Levine, Hon. Mel, a Representative in Congress from the State of Califor- 
nia 10 

McCloskey, Peter F., president, Electronic Industries Association, accom- 
panied by Robert C. Johnson, chairman, multiassociation task group on 
Circular A-122 276 

Moody, Hon. Jim, a Representative in Congress from the State of Wiscon- 
sin 25 

O'Connell, Brian, president, Independent Sector 72 

Rettgers, Forrest I., executive vice president, National Association of 
Manufacturers, accompanied by Gary D. Lipkin, assistant general coun- 
sel 162 

Rubin, Florence, director, League of Women Voters 101 

Schroeder, Hon. Patricia, a Representative in Congress from the State of 
Colorado 19 

Shanley, Mildred, staff counsel, Catholic Charities of the Diocese of 
Brooklyn 87 

Shattuck, John, Washington office, American Civil Liberties Union, ac- 
companied by Thomas J. Madden, partner, and David H. Remes, asso- 
ciate, Kaye, Scholer, Fierman, Hays & Handler, Washington, D.C 196 

Thompson, Robert T., chairman, board of directors, U.S. Chamber of 
Commerce, accompanied by Christine A. Russell, legislative counsel, 
Small Business Center, and J. H. Joseph, vice president, domestic 

policy 255 

iiiD 



IV 

Statement of Continued Pa « e 

Toups, John M., president and chief executive officer, Planning Research 
Corp., on behalf of Professional Services Council, accompanied by Bert 
Concklin, director, government relations, Planning Research Corp 266 

Towns, Hon. Edolphus, a Representative in Congress from the State of 
New York 15 

West, William A., executive director, Association for Retarded Citizens, 

Harrisburg, Pa 246 

Weymueller, Robert G., director of government relations, American Lung 
Association 95 

Wright, Joseph R., Jr., Deputy Director, Office of Management and 

Budget, accompanied by Bob Bedell, Deputy General Counsel 28 

Letters, statements, etc., submitted for the record by — 

Bothwell, Robert O., executive director, National Committee for Respon- 
sive Philanthropy: Prepared statement 286-293 

Botwinick, Michael, director, Corcoran Gallery of Art, Washington, D.C.: 
Prepared statement 150-153 

Bowsher, Charles A., Comptroller General of the United States: Prepared 
statement 60-65 

Bucy, June, chief executive officer, the National Network of Runaway 
and Youth Services, Inc.: Prepared statement 157-160 

Clayman, Jacob, president, National Council of Senior Citizens: Prepared 

statement 301-304 

Cooper, Maudine R., vice president, National Urban League: Prepared 
statement 119-134 

Daoust, George A., Jr., executive director, National Council of Technical 
Service Industries: Prepared statement 185-192 

Deans, Thomas S., executive director, Appalachian Mountain Club: Pre- 
pared statement 137-139 

Horton, Hon. Frank, a Representative in Congress from the State of New 
York: Prepared statement 5-9 

Jones, Donald G., executive secretary, Wisconsin Community Action Pro- 
gram Association, Inc., Madison, Wis.: Prepared statement 239-245 

Kerschner, Paul A., associate director, division of legislation, American 
Association of Retired Persons 143-146 

Levine, Hon. Mel, a Representative in Congress from the State of Califor- 
nia: Prepared statement 12-14 

McCloskey, Peter F., President, Electronic Industries Association: Pre- 
pared statement 278-282 

Madden, Thomas J., partner, Kaye, Scholer, Fierman, Hays & Handler, 
Washington, D.C.: 

Information concerning court cases 200 

Prepared statement and submissions to Chairman Brooks' 
questions 202-234 

Moody, Hon. Jim, a Representative in Congress from the State of Wiscon- 
sin: Prepared statement 26-27 

O'Connell, Brian, president, Independent Sector: Prepared statement 75-86 

Remes, David H., associate, Kaye, Scholer, Fierman, Hays & Handler, 
Washington, D.C.: Prepared statement and submissions to Chairman 
Brooks' questions 202-234 

Rettgers, Forrest I., executive vice president, National Association of 
Manufacturers: Prepared statement 165-181 

Rubin, Florence, director, League of Women Voters: Prepared state- 
ment 104-115 

Schroeder, Hon. Patricia, a Representative in Congress from the State of 
Colorado: Prepared statement 21-24 

Shanely, Mildred, staff counsel, Catholic Charities of the Diocese of 
Brooklyn: Prepared statement 90-94 

Thompson, Robert T., chairman, board of directors, U.S. Chamber of 
Commerce: Prepared statement 259-263 

Toups, John M., president and chief executive officer, Planning Research 
Corp., on behalf of Professional Services Council: Prepared 
statement 269-274 

Towns, Hon. Edolphus, a Representative in Congress from the State of 
New York: Prepared statement 16-18 

West, William A., executive director, Association for Retarded Citizens, 
Harrisburg, Pa.: Prepared statement 249-251 



Letters, statements, etc., submitted for the record by Continued Page 

Weymueller, Robert G., director of government relations, American Lung 

Association: Prepared statement 98-99 

Wright, Joseph R., Jr., Deputy Director, Office of Management and 

Budget Prepared statement 31-43 

APPENDIXES 

Appendix 1. — Proposed changes to OMB Circular A-122 307 

Appendix 2. — CRS analysis : 310 

Appendix 3. — Statements and letters regarding OMB Circular A-122 369 



ADMINISTRATION PROPOSAL THREATENS 
FIRST AMENDMENT RIGHTS OF GOVERNMENT 
GRANTEES AND CONTRACTORS 



TUESDAY, MARCH 1, 1983 

House of Representatives, 
Legislation and National Security Subcommittee 

of the Committee on Government Operations, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:30 a.m., in room 
2154, Rayburn House Office Building, Hon. Jack Brooks (chairman 
of the subcommittee) presiding. 

Present: Representatives Jack Brooks, Henry A. Waxman, Tom 
Lantos, Frank Horton, and William F. Clinger, Jr. 

Subcommittee staff present: Richard C. Barnes, staff director; 
Cynthia Meadow, professional staff member; Linda Shelton, office 
manager; Mary Alice Oliver, secretary; full committee staff: Wil- 
liam M. Jones, general counsel; Robert Brink and Donna Fossum, 
professional staff members; John M. Duncan, minority staff direc- 
tor; Thomas F. Houston and Stephen M. Daniels, minority profes- 
sional staff members, Committee on Government Operations. 

OPENING STATEMENT OF CHAIRMAN BROOKS 

Mr. Brooks. The subcommittee will come to order. 

The right to free speech, to due process of law, and to approach 
the Government for the redress of grievances are some of the most 
fundamental precepts of our Constitution. Judging from the outcry 
generated by a recent proposal by OMB, the DOD, the GSA, and 
NASA to revise regulations concerning cost principles for contrac- 
tors and grantees, these constitutional freedoms appear to be in 
grave danger. 

Under the guise of better management, the administration wants 
to demand that a host of businesses, organizations and individuals 
across this Nation give up their right to participate in the govern- 
mental process if they are to receive Federal grants and contracts. 
A wide spectrum of organizations and individuals from all walks of 
life have attacked the proposals as a "gag rule" which would throt- 
tle the free speech of Federal contractors and grantees. 

In late January, the administration proposed changes in OMB 
Circular A- 122 and the procurement regulations of DOD, GSA, and 
NASA that, on their face, were designed to prevent the recipients 
of Government contracts and grants from using Federal funds to 
support lobbying activities. I fully agree with the premise that 
unless specifically authorized, Federal dollars should not be spent 

(1) 



by contractors and grantees to lobby the Congress. Opponents of 
the administration's proposed revisions allege, however, that the 
dragnet approach is so broad as to sweep into its path legitimate 
lobbying activities carried on with non-Federal funds. 

The proposed regulations mark an abrupt departure from long- 
standing principles of cost allocation between Federal and non-Fed- 
eral funds. Rather than simply banning the use of Federal dollars 
for lobbying activities, the proposed regulations may, in effect, con- 
dition the acceptance of Government funds upon the waiver of con- 
stitutional rights. The proposed changes would define "political ad- 
vocacy" so broadly as to include virtually any attempt to comment 
on public policy issues. 

When the Reagan administration came to town 2 years ago and 
began slashing away at Federal social programs, they claimed that 
nobody would really be hurt by those budget cuts. The "truly 
needy," they said, would still be taken care of by the administra- 
tion's "safety net" and that the gap left by Federal cutbacks would 
be filled by local nonprofit social service agencies. Now it appears 
that the administration would deny those same local nonprofit or- 
ganizations — the very groups who have firsthand real-life experi- 
ence with how changes in social programs affect people — the oppor- 
tunity to comment on regulatory reform proposals, on block grant 
implementation, on legislation, and other vitally important activi- 
ties of Federal, State, and local government. 

It is important to note, however, that it is not only organizations 
representing the poor, the elderly, the handicapped, and children 
that have sounded the alarm about this proposal. They are joined 
in their anguish by such "left wing," "bleeding heart" organiza- 
tions as the U.S. Chamber of Commerce, the National Association 
of Manufacturers, the Electronic Industries Association and others, 
hundreds of others. 

It is heartwarming to see the ACLU, the U.S. Chamber, the 
League of Women Voters, the American Heart Association, and the 
Ford Motor Co. embrace each other in this joint effort to resist 
Government oppression. I applaud them all for their alertness to 
the need to exercise their civic responsibilities. 

Late last Friday the administration issued a statement saying 
that even though the comment period for the current proposal had 
not yet expired, they were preparing to issue a revised proposal. 
Apparently the unfairness and the impracticality of this proposal 
has finally come to the attention of important officials at the other 
end of Pennsylvania Avenue. We are proceeding with this hearing, 
however, to assure that the issues are given a full public airing. 

During the course of this hearing we intend to probe what 
prompted this proposal, if a serious problem exists which needs to 
be solved, whether a more tempered approach is advisable, what 
effect it will have on Federal contractors and grantees, its effect on 
the ability of Government agencies and the Congress to make in- 
formed decisions, and the legality and the constitutionality of these 
proposals. 

Over 30 witnesses are scheduled to testify and numerous others 
are submitting written statements. They represent hundreds of 
major organizations throughout this country. I have asked all the 
witnesses to limit their prepared comments to no more than 5 min- 



utes in the hope that we can hear all of them. I hope that the testi- 
mony received at this hearing will be heard by appropriate officials 
of the executive branch and that they will be encouraged to exer- 
cise their responsibilities with a sense of fairness and equity. 

Before proceeding I would like to call on the senior Republican 
leader of the committee, Mr. Frank Horton, the distinguished 
member from New York. . 

Mr. Horton. Thank you, Mr. Chairman. 

First of all I want to say that this proposed regulation came to 
my attention when I was having office hours in my district. Two 
weeks after we were sworn in, I had office hours in Oswego, 
Oneida, Cayuga, Seneca, and Wayne Counties. I saw over 3,000 
people. Several of those people came in to me and said, "You know, 
next year I can't come in and talk to you." I said, "Why not?" And 
they said, "Because of this proposed regulation." But when I first 
received a copy of it, I just couldn't believe it. I got in touch with 
my staff and was pleased to learn that we were having this hearing 
today. 

I am very much opposed to this proposed regulation, and I was 
glad to hear from Mr. Wright of OMB this morning that his agency 
intends not to go forward with it. 

Mr. Chairman, I have a rather lengthy statement this morning. I 
would like to make part of it, and I would like to ask unanimous 
consent to revise and extend my remarks and include the full text 
of my statement in the record. 

Mr. Brooks. Without objection. 

Mr. Horton. Mr. Chairman, I find myself in a difficult position. 
An administration headed by a President of my own political party 
has issued a proposed regulation which is under review by my com- 
mittee. I want to support the administration. I generally agree 
with them. All other things being equal, I would support them 
even if I were not overly enthusiastic about one of their proposals. 
But much as I would like to be able to defend the administration 
on this issue, I cannot. 

I support the principle that private groups should not use Gov- 
ernment funds to lobby their government; on that, Mr. Chairman, I 
certainly agree with you. I don't think we ought to be issuing 
grants for people to lobby. A Government agency should not award 
grants and contracts to organizations which use those awards just 
to further their own political aims. 

But the proposed regulation before us this morning in addressing 
these concerns goes way beyond the bounds of propriety. It says to 
citizens that if their salaries are a result of a Government contract 
or grant, they cannot comment during working hours on Govern- 
ment activities. They may not communicate with legislators or ex- 
ecutive branch policymakers. They may not even in the normal 
course of business — to quote item b.(3) of the proposal — try to influ- 
ence governmental decisions through an "attempt to affect the 
opinions of the general public or any segment thereof." That's a 
gag rule if I've ever heard of one. 

As a legislator concerned with the proper operation of all Gov- 
ernment activity, I am strongly opposed to any regulation that 
would limit the opportunities of citizens working on Government 
grants and contracts from talking with me about their work. 



We are not talking here about what expenses can legitimately be 
claimed as reimbursable under an award or even what can be tax 
deductible. We are talking about what a citizen can do with his 
own money on time not paid for by the Government. If any portion 
of his salary comes from a cost-based contract or grant, the propos- 
al doesn't say that he can't use Government money to express an 
opinion about a public issue. It says that if he receives any Govern- 
ment money through an award based on cost, he cannot express an 
opinion on public matters and still be compensated. 

Mr. Chairman, this is positively outrageous. I cannot believe that 
this could possibly be the intent of the administration, and yet the 
language is painfully clear. 

So I am very happy that I was informed this morning that Mr. 
Wright later will indicate that this particular proposal is out the 
window, but I agree with you that we should hear comments from 
people that are concerned about it. I am concerned about it, and I 
hope the administration is, too. As I told Mr. Wright, there are 
always two ways to do something. One is the easy way and the 
other one's the tough way. The administration is going about this 
project the tough way. I think that if they have a problem, they 
had better tell us about it; look at the problem very carefully and 
then come up with something that is reasonable and meaningful. I 
don't think anybody in this room wants to have Federal money go 
for lobbying. That is not the intent of the taxpayers and everybody 
in this room is a taxpayer. 

But on the other hand, we certainly don't want to stifle public 
opinion and the right of people to speak out on issues and problems 
that concern them. This was certainly not the way to prevent Fed- 
eral money from being used for lobbying. And if there is any at- 
tempt to do it in the future, I think that the administration better 
be very careful with what it proposes, and I would hope that they 
would check with our committee before they get too far toward 
making it public. 

[Mr. Horton's prepared statement follows:] 



CONGRESSMAN FRANK HORTON 
29th District, New York 



Mr. Chairman, I find myself in a difficult position this morning. 
An Administration headed by a President of my own political party 
has issued a proposed regulation which is under review by my committee, 

I WANT TO SUPPORT MY ADMINISTRATION. I GENERALLY AGREE WITH THEM. All 
OTHER THINGS BEING EQUAL, I WOULD SUPPORT THEM EVEN IF I WERE NOT OVERLY 
ENTHUSIASTIC ABOUT ONE OF THEIR PROPOSALS. 

Rut much as I would like to be able to defend the Administration, 
on this issue I cannot, 

I support the principle that private groups should not use govern- 
ment funds to lobby their government. Government agencies should not 
award grants and contracts to highly ideological organizations which use 
those awards to further their own political aims. 

But Mr. Chairman, the proposed regulation before us this morning in 

ADDRESSING THESE CONCERNS GOES BEYOND THE BOUNDS OF PROPRIETY, It SAYS 

to citizens that if their salary is a result of a government contract or 
grant they cannot comment during working hours on government activity. 
They may not communicate with legislators or executive branch policy- 
makers. They may not even, in the normal course of business, to quote 

ITEM (b)(3) OF THE PROPOSAL, "ATTEMPT TO INFLUENCE GOVERNMENTAL DECISIONS 
THROUGH AN ATTEMPT TO AFFECT THE OPINIONS OF THE GENERAL PUBLIC OR ANY 
SEGMENT THEREOF." As A LEGISLATOR CONCERNED WITH THE PROPER OPERATION 
OF ALL GOVERNMENT ACTIVITIES, I AM STRONGLY OPPOSED TO ANY REGULATION 
THAT WOULD LIMIT THE OPPORTUNITIES OF CITIZENS WORKING ON GOVERNMENT 
GRANTS AND CONTRACTS FROM TALKING WITH ME ABOUT THEIR WORK. 



This proposal, however, does not stop here, The regulation would 
also apply to all citizens if any part of their salary ~ no matter how 
small — was paid from a federal award, to these people this regulation 
says no matter how much may you make privately if any part of your 
salary comes from a federal contract or grant, you may not "attempt to 
affect the opinions of (any segment of) the general public" "" any other 

PERSON, THAT IS — WITH REGARD TO ANY "GOVERNMENTAL DECISION." We're 
NOT TALKING HERE ABOUT WHAT EXPENSES CAN LEGITIMATELY BE CLAIMED AS 
REIMBURSABLE UNDER AN AWARD, OR EVEN WHAT CAN BE TAX"DEDUCTI BLE . We're 
TALKING ABOUT WHAT A CITIZEN CAN DO WITH HIS OWN MONEY, ON TIME NOT PAID 
FOR BY THE GOVERNMENT, IF ANY PORTION OF HIS SALARY COMES FROM A COST- 
BASED GOVERNMENT GRANT OR CONTRACT. THE PROPOSAL DOESN'T SAY THAT HE 
CAN'T USE HIS OWN MONEY TO EXPRESS AN OPINION ABOUT A PUBLIC ISSUE, IT 
SAYS THAT J_F HE RECEIVES ANY GOVERNMENT MONEY THROUGH AN AWARD BASED ON 
COST, HE CANNOT EXPRESS AN OPINION ON PUBLIC MATTERS AND STILL BE 
COMPENSATED . 

Mr. Chairman, that is positively outrageous, I cannot believe that 
this could possibly be the intent of the administration ~ yet the 
language is painfully clear, 

we all know that a government award is a privilege, mot a right, 
and that the government may therefore place certain conditions on its 
recipients. we may argue about which conditions are appropriate in 
which cases. But all Americans must stand together in condemning any 
attempt to forbid anyone who accepts any federal money from using his 
own resources to speak his mind on public issues. 

if we permit this restriction on recipients of cost"based awards, 
where will the limitations stop? mlght they be extended to abridgements 
of other constitutional rights? could anyone who takes federal money be 
required to attend a certain church? glve up his security against 



UNREASONABLE SEARCH AND SEIZURE? LOSE HIS VOTE? MlGHT THE RESTRICTIONS 
EXTEND TO OTHER CLASSES OF PEOPLE WHO RECEIVE FEDERAL FUNDS " GOVERN- 
MENT EMPLOYEES OR SOCIAL SECURITY BENEFICIARIES, FOR EXAMPLE? HOW ABOUT 
RECIPIENTS OF TAX BREAKS, LIKE HOMEOWNERS WHO DEDUCT THE INTEREST 
PAYMENTS ON THEIR MORTGAGES? 

I DON'T BELIEVE IT IS THE INTENTION OF THIS ADMINISTRATION TO DO 
THE THINGS I'VE JUST MENTIONED. BUT THE POTENTIAL FOR MISCHIEF IS 
THERE. SOME PEOPLE MAY THINK THAT THIS POTENTIAL IS SMALL, AND THAT 
THESE QUESTIONS I'm POSING ARE EXTREME, BUT THE INSERTION IN THE APPRO- 
priate places of a few simple words could extend this proposal to almost 
every American citizen. 

Even as the proposal is drafted, First Amendment liberties may not 
be the only Constitutional rights which are threatened. As I have 
discussed my concerns informally with some of my friends ~ people who, 
if this proposal were law, would no longer be able to speak with me 
unless they were prepared to forfeit their government contracts ~ i 
have heard fears that the flfth amendment right to due process may also 
be at risk. Suppose an individual holds a government contract to which 
he devotes x percent of his time, and is therefore reimbursed for x 
percent of his salary. the work is performed satisfactorily. while it 
is under way, however, this person, during a time when he is working on 
something other than his government contract, spends his own money to 
come to Capitol Hill, so that he can speak with me about a public issue. 
He has now violated the terms of his contract, so he loses the entire 
salary reimbursement he had coming to him. the government has thus 
taken his labors without providing him due process. sound reasonable? 
Most certainly not. I would hate to be representing the government when 

THE INDIVIDUAL BRINGS THIS CASE TO COURT. 



8 



Mr, Chairman, these Constitutional problems are not the only 
difficulties i have with this proposal, i want to raise a couple of 

OTHER CONCERNS/ AS WELL. It's ALWAYS FASHIONABLE TO DUMP ON LOBBYISTS. 

as a social group, they are generally held in low esteem. but you and i 
know very well from our years in the congress that lobbyists perform a 
very valuable function by making us aware of the concerns of people who 
are interested in the making of public policy, they provide ideas; they 
help us evaluate thoughts of our own; they aid in drafting documents so 
that those statements are technically correct and have as few unforeseen 
consequences as possible; and they give us an impression of how dif- 
ferent groups in society will view our work. they don't do this only 
for the Congress, either; they provide all the same services for 

AGENCIES AND OFFICIALS OF THE EXECUTIVE BRANCH. Th I S ADMINISTRATION 
KNOWS THAT, TOO; TO CITE ONE WELL"KNOWN EXAMPLE, THE PRESIDENT HAS 
CREATED THE GRACE COMMISSION, COMPOSED OF PRIVATE-SECTOR REPRESENTA- 
TIVES, TO ADVISE ON HOW TO MANAGE FEDERAL PROGRAMS BETTER. 

YOU AND I KNOW THAT PEOPLE WHO ADVISE US WILL OCCASIONALLY PROVIDE 
INFORMATION THAT IS BIASED OR EVEN INCORRECT. BUT IF WE COULDN'T 
EVALUATE THEIR ARGUMENTS AND DRAW OUR OWN CONCLUSIONS ON PUBLIC ISSUES, 
WE WOULDN'T BE WORTH OUR SALT AS CONGRESSMEN. It's OUR JOB TO DISTILL 
FROM THE OFTEN CONFLICTING ASSERTIONS OF PUBLIC DEBATE WHAT THE BEST 
POLICIES ARE. BUT WE WOULD SURE HAVE A TOUGH TIME FIGURING OUT HOW TO 
PROCEED IF THAT DEBATE WERE STILLED. LOBBYISTS AND OTHER CITIZENS WHO 
PETITION THEIR GOVERNMENT OFFICIALS PROVIDE THE INFORMATION THAT 
ENABLES US TO MAKE FAR MORE INFORMED AND INTELLIGENT DECISIONS. 

I AM LASTLY DISTURBED, MR . CHAIRMAN, BY THE NAIVETE WHICH CHARAC- 
TERIZES THIS PROPOSAL'S UNDERSTANDING OF THE RELATIONSHIP BETWEEN 
BUSINESS AND GOVERNMENT. We HEAR THAT THERE SHOULD BE A "WALL OF 
SEPARATION" BETWEEN COMMERCIAL AND POLITICAL ACTIVITY. BUT OUR ECONOMY 



and our government operate in such a way that one cannot be separated 
from the other. for business to function effectively in today's econ- 
omy, it must participate in governmental decisions. tax and other laws 
recognize that some political activity constitutes costs necessary to 
the usual conduct of business. for government to function effectively, 
it must depend on many and varied types of assistance from business. 
This mutual dependence by itself makes creating a "wall of separation" 
impossible. 

The practical applications of creating a wall are perplexing, too. 
Under the proposal, for example, marketing is a legitimate business 
expense, but lobbying is sufficient grounds for disqualifying all 
reimbursement for costs associated with a person who does it. What is 
the practical difference between marketing and lobbying? Marketing is 

A COMPLEX AND MULTI"FACETED ACTIVITY IN ANY AREA. It IS PARTICULARLY 
COMPLICATED WHEN GOVERNMENT IS INVOLVED. MARKETING HERE INVOLVES 
SPEAKING WITH A MYRIAD OF INDIVIDUALS IN VARIOUS AGENCIES AND TWO 
SEPARATE BRANCHES OF GOVERNMENT. It FREQUENTLY REQUIRES INFLUENCING 

policy-makers as well as contracting officers. the line between mar- 
keting and lobbying cannot be drawn with any degree of correctness. 
In summary, Mr. Chairman, this proposal is a classic example of 

THE REMEDY BEING WORSE THAN THE PROBLEM IT IS SUPPOSED TO SOLVE — It's 
LIKE BURNING YOUR HOUSE DOWN BECAUSE YOU DON'T LIKE THE COLOR OF THE 
WALLPAPER. 

I AM TRULY SORRY TO HAVE TO SPEAK IN SUCH HARSH TERMS ABOUT A 
PROPOSAL ADVANCED BY THE ADMINISTRATION. RUT I WOULD NOT BE FULFILLING 
MY DUTIES AS A MEMBER OF CONGRESS IF I DID NOT VOICE THESE OPINIONS. 

I UNDERSTAND THAT THE ADMINISTRATION IS NOT YET PREPARED TO ISSUE 
THESE PROPOSED REGULATIONS IN FINAL FORM. I AM HOPEFUL THAT IN TODAY'S 
HEARING WE CAN EXPLORE WAYS TO ADDRESS THE ISSUES I HAVE RAISED AND AT 
THE SAME TIME ADDRESS THE CONCERNS THAT HAVE PROMPTED THE ADMINISTRATION 
TO ACT -" THE PROBLEM OF PRIVATE GROUPS INAPPROPRIATELY USING PUBLIC 
MONIES TO LOBBY GOVERNMENT. 



10 

Mr. Brooks. Thank you very much, Mr. Horton. 

The first witness this morning is Congressman Mel Levine from 
California's 27th District. He was elected to the 98th Congress in 
November, after 6 years in the California Assembly. He has a bach- 
elor's from the University of California at Berkeley, a master's in 
public administration from Princeton, and a law degree from Har- 
vard. He serves on our Government Operations Subcommittees on 
Environment, Energy, and Natural Resources, and on Manpower 
and Housing. We welcome you as a witness today. 

STATEMENT OF HON. MEL LEVINE, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. Levine. Thank you very much, Mr. Chairman. 

I very much appreciate the opportunity to testify before your 
subcommittee today. 

In light of the excellent remarks made both by you, Mr. Chair- 
man, and by your ranking minority colleague, I would like to have 
the opportunity to summarize my testimony for you and seek 
unanimous consent to revise and extend my remarks by submitting 
the full testimony into the record. 

Mr. Brooks. Without objection. 

Mr. Levine. Thank you, Mr. Chairman. 

Over the last few weeks, I have received a number of letters and 
telephone calls from concerned business leaders in my district re- 
garding the proposed OMB revision to existing guidelines on lobby- 
ing and political advocacy known as Circular A-122. 

I asked to be here today to relay some of that concern to you, 
which has come from a cross-section of my district, and to other 
members of your subcommittee. 

I want to begin by saying that I agree with both the chairman 
and Mr. Horton that the intent of the revision is appropriate and 
that some reform of current guidelines is long overdue. In none of 
my conversations with people who oppose the reforms currently 
under consideration has anyone questioned the need to insure that 
no one who receives Government grants be allowed to use that 
money for partisan political purposes. Unfortunately, the revised 
guidelines go beyond their stated goal and might very well signifi- 
cantly impair the flow of information Members of Congress need to 
properly represent their constituents. 

I am concerned also that these regulations appear to go so far as 
to significantly impair the first amendment rights of people cov- 
ered by these regulations. Objections to the new guidelines that 
have been provided to me by people throughout my district focus 
on three areas. First the prohibition against "attempting to influ- 
ence governmental decisions through an attempt to affect the opin- 
ion of the general public or any segment thereof appears to be 
quite unreasonably broad. It is so broad in fact that it could be con- 
strued to cover conversations between individuals and elected offi- 
cials. Does this mean that if I am touring an installation at which 
contract employees are working on a Federal project and I ask an 
employee for his opinion on the value of the project that that em- 
ployee could find himself or herself in trouble for sharing his or 
her opinions with me? Would an employee of a nonprofit organiza- 



11 

tion be prohibited from meeting with me to discuss the merits of a 
project in which that organization was involved during regular 
business hours? Would covered individuals be prohibited from writ- 
ing something as insignificant as a letter to the editor clarifying an 
issue discussed in that publication's editorial or news section? 

In reading the OMB circular, Mr. Chairman, it appears that the 
answers to those questions would all be yes. I believe that such pro- 
hibitions are not only unfair, but violate free speech guarantees 
contained in the first amendment to our Constitution. 

Other specific provisions are equally disturbing. Subsection l.b.(4) 
of the new paragraph would appear to be designed to prohibit cov- 
ered individuals from taking part in lobbying both elected officials 
and their staffs. 

Subsection l.b.(6) prohibits giving anything of value, including 
membership dues to any organization with political advocacy "as a 
substantial organization purpose." The legitimate objections that 
have been raised by so many people to these vague, overbroad, and 
suspect provisions range from the implications for advocacy, mem- 
bership, and simple provision of information. 

Many times supporters and opponents of legislation or guidelines 
can be an indication of how well crafted such guidelines are. And 
as you indicated, Mr. Chairman, anything which manages to gener- 
ate opposition from the chamber of commerce, the National Associ- 
ation of Manufacturers, Common Cause and the Girl Scouts of 
America clearly raises some very serious problems. 

It is my belief that OMB would best be served by throwing away 
A- 122 altogether and starting all over again to bring about some 
meaningful reform in this area. After reading the circular, it is my 
belief that it has so many problems that it would be much more 
work to try and fix this circular than to begin anew and do it right 
the first time. 

Thank you again for allowing me to come before your subcom- 
mittee to express these concerns. 

Mr. Brooks. Thank you very much. We appreciate your testimo- 
ny, Congressman. 

[Mr. Levine's prepared statement follows:] 



20-644 O— 83- 



12 



TESTIMONY OF CONGRESSMAN MEL LEVINE 

BEFORE THE GOVERNMENT OPERATIONS 
SUBCOMMITTE ON LEGISLATION AND NATIONAL SECURITY 



Over the last few weeks I have received a number of letters and 
telephone calls from concerned business leaders in my district regarding 
the proposed OMB revision to existing guidelines on lobbying and political 
advocacy, circular A-122. I asked to be here today to relay some of that 
concern to you and to other Members of your subcommittee. 

I want to begin by saying that I believe that the intent of the 
revision is admirable and that some reform of current guidelines is long 
overdue. In none of my conversations with people who oppose the reforms 
currently under consideration has anyone questioned the need to ensure that 
no one who receives government grants be allowed to use that money for 
partisan political purposes. Unfortunately, the revised guidelines go 
beyond their stated goal and might very well significantly impair the flow 
of information Members of Congress need to properly represent their 
constituents. I am concerned, also, that these regulations may go so far as 
to significantly impair the First Amendment rights of people covered by 
these regulations. 

Objections to the new guidelines are focused on three areas: 

(1) The prohibition against "attempting to influence governmental 
decisions through an attempt to affect the opinion of the general public 
or any segment thereof," seems unreasonably broad. It is so broad, in fact, 
that it could be construed to cover conversations between individuals and 
elected officials. Does this mean that if I am touring an installation at 
which contract employees are working on a federal project and I ask an 
employee for his opinion on the value of the project, that he could find 



13 



himself in trouble for sharing his opinion with me? Would an employee 
of a non-profit organization be prohibited from meeting with me to discuss 
the merits of a project in which that organization was involved during 
regular business hours? Would covered individuals be prohibited from 
writing something as insignificant as a letter to the editor clarifying 
an issue discussed in that publication's editorial or news section? 

In reading the 0MB circular, it appears that the answers to these 
questions would be in the affirmative. I believe that such prohibitions 
are not only unfair, but tread dangerously close to violating freedom of 
speech guarantees contained in the Constitution. 

(2) Secondly, subsection l.b.(4) of the new paragraph B33 would 
appear to be designed to prohibit covered individuals from taking part in 
lobbying both elected officials and their staffs. Once again, however, the 
guidelines are written in such a general manner that all communication 
between ejected officials, government employees and their staffs would be 
prohibited. Frankly, it is very important that my staff and I have the 
ability to communicate with knowledgeable individuals on subjects in which 

I am, or may become, involved as a result of my Congressional responsibilities 
Any prohibition on this will impair my abilities to properly represent the 
needs of my constituents and will unfairly restrict their access to both 
me and members of my staff. 

(3) Finally, subsction l.b.(6)of the new paragraph B33 prohibits 
giving anything of value, including membership dues, to an organization 
with political advocacy "as a substantial organization purpose." Once 
again, because of the vague way in which these guidelines have been drafted, 
a worthwhile goal has been approached in a way which is so broad that in 
addition to prohibiting misuse of government funds, individuals and 
organizations would have their ability to participate in a broad cross- 
section of important activities impaired. For example, would a Chamber 



14 



of Commerce which spends a significant amount of its time advocating a 
particular point of view to either the public or elected officials be 
defined as a political orgainizati on? If it is, would both individuals 
and corporations which receive government grant funds be prohibited from 
joining that Chamber of Commerce? It would appear to me that they almost 
certainly would. 

These objections merely scratch the surface of the complaints which 
I have received about this matter. Many times supporters and opponents of 
legislation or guidelines can be an indication of how well crafted such 
guidelines are. Anything which manages to generate opposition from the 
Chamber of Commerce, the National Association of Manufacturers, Common 
Cause and the Girl Scouts of America clearly raises some very serious 
problems. It is my belief that 0MB would best be served by throwing away 
A-122 and starting all over again to bring about some meaningful reform 
to this area. After reading the circular, it is my belief that it has so 
many problems that it would be much more work to try and fix this circular 
than to start all over again and do it right the first time. 

Thank you again for allowing me to come before you and convey to you 
my concerns. 



15 

Mr. Brooks. Our next witness this morning is Congressman Ed 
Towns of New York's 11th District. He was elected to the 98th Con- 
gress from the district which constitutes a large portion of Brook- 
lyn. He is a social worker by profession and served for 5 years as 
the deputy borough president for Brooklyn. On Government Oper- 
ations, Congressman Towns serves on our Subcommittees on Gov- 
ernment Information, Justice, and Agriculture, and on Intergov- 
ernmental Relations and Human Resources. 

Congressman, we are delighted to have you here. You may pro- 
ceed. 

STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF NEW YORK 

Mr. Towns. I am delighted to be here, Mr. Chairman. 

In light of what Congressman Horton has said, and in light of 
your comments, Mr. Chairman, I will just summarize. I am happy 
to know that A-122 is not going to be moved forward. 

Mr. Brooks. Without objection, the statement of the gentleman 
will be included in the record and you can proceed as you see fit. 

Mr. Towns. A couple of comments. As legislators, we have a re- 
sponsibility to insure that Congress retains the power to make law 
and not the executive branch agencies. Regulations are no substi- 
tute for legislation. OMB's new rules clearly move beyond 
congressional intent in restricting the use of Federal grants by 
nonprofit organizations. They also infringe on the constitutional 
protection rights of freedom of speech. Such restrictions must be 
actively opposed by Congress. Hopefully, today's hearings will serve 
to expose these rules as bad public policy and will lead to their 
withdrawal as it has already done. 

I am thankful for this opportunity to present my views to the 
committee and hope that we will make certain that rules such as 
A-122 never move forward, because I think it is important to en- 
courage people to participate in the governmental process. 

Thank you very much, Mr. Chairman. 

Mr. Brooks. Thank you very much. 

Mr. Horton. Mr. Chairman, I would just like to welcome Con- 
gressman Towns. Ed is a new member of the New York delegation 
and we in that delegation are very happy that you are on this com- 
mittee. It is the first time you have testified before the committee. 
I have read your statement and I certainly agree with it. 

Mr. Towns. Delighted to be working with you. 

Mr. Brooks. Thank you very much. 

[Mr. Towns' prepared statement follows:] 



16 



TESTIMONY 
OF 
THE HONORABLE ED TOWNS 

MR. CHAIRMAN, I WISH TO COMMEND YOU FOR HOLDING THESE 
HEARINGS ON 0M3 ' S PROPOSED AMENDMENTS TO ITS "COST PRINCIPLES 
FOR NON-PROFIT ORGANIZATIONS", OMB CIRCULAR A-122. I BELIEVE 
THAT THESE HEARINGS ARE CRITICAL TO MAINTAINING OUR "CHECKS 
AND BALANCES" SYSTEM OF GOVERNMENT. THE "SO-CALLED MANDATE". 
OF 1980 DID NOT GIVE THE ADMINISTRATION LICENSE TO BECOME A 
MONARCHY, WITH NO ROLE FOR THE. LEGISLATIVE OR JUDICIAL BRANCHES 
OF OUR GOVERNMENT. UNFORTUNATELY, THIS ADMINISTRATION, IN A 
NUMBER OF AREAS, HAS BEHAVED AS IF EXECUTIVE BRANCH EDICTS 
WERE OMNIPOTENT. OMB ' S AMENDMENTS, TO CIRCULAR A-122, ARE ONLY 
THE LATEST EXAMPLE OF SUCH ABUSE. 

MANY FEDERAL GRANTS AND CONTRACTS PROVIDE THAT THE 
GOVERNMENT WILL REIMBURSE THE GRANTEE OR CONTRACTOR FOR EXPENSES 
RELATED TO THE GRANT OR CONTRACT ACTIVITY. SINCE GRANTEES 
USUALLY ENGAGE IN OTHER ACTIVITIES, NOT FUNDED BY A FEDERAL 
GRANT OR CONTACT, THE TOTAL COST OF THE GRANTEE'S OPERATIONS MUST 
BE ALLOCATED BETWEEN THE GRANT ACTIVITY AND THE OTHER ACTIVITIES 
OF THE GRANTEE. OMB HAS A LEGITIMATE ROLE IN ESTABLISHING 
UNIFORM GUIDELINES FOR MAKING THIS "COST ALLOCATION" TO NON-PROFIT 
GRANTEES. THE PROPOSED CHANGES TO THE CURRENT GUIDELINES, HOWEVER, 
GO FAR BEYOND OMB'S APPROPRIATE ROLE IN DETERMINING COST ALLOCATIONS. 
IN FACT, OMB'S NEW GUIDELINES ARE MORE RESTRICTIVE THAN CONGRESS' 
OWN LEGISLATIVE MANDATES AND STATUTES. 

UNDER THE PROPOSED AMENDMENTS, ALL GRANTS TO NON-PROFIT 
ORGANIZATIONS WOULD BE SUBJECT TO RESTRICTIONS ON PARTICIPATION 
IN THE GOVERNMENTAL DECISION-MAKING PROCESS. CURRENTLY, SUCH 
RESTRICTIONS APPLY ONLY WHERE EXPLICITLY IMPOSED BY CONGRESS. NOT 
ONLY WOULD THESE AMENDMENTS DENY REIMBURSEMENT FOR THE COSTS OF 

"POLITICAL ADVOCACY" BUT THE DEFINITION OF "POLITICAL ADVOCACY" 

HAS BEEN EXPANDED SIGNIFICANTLY. INFLUENCING GOVERNMENTAL 

DECISIONS THROUGH COMMENTS ON REGULATIONS, AMICUS BRIEFS, 
PUBLIC INTEREST LITIGATION OR ANY COMMUNICATION DESIGNED TO 



17 



INFLUENCE A GOVERNMENT EMPLOYEE IN MAKING OR ADMINISTERING 
PUBLIC POLICY IS PROHIBITED BY THE PROPOSED OMB REGULATIONS. 
THESE RESTRICTIONS ARE GREATER THAN THOSE IMPOSED ON CHARITABLE 
501(c) 3 ORGANIZATIONS BY THE INTERNAL REVENUE CODE OR THE 
RESTRICTIONS CONGRESS HAS ATTACHED TO THE DEPARTMENT OF HEALTH 
AND HUMAN SERVICES' APPROPRIATIONS BILL. PERHAPS THE MOST 
ONEROUS CHANGE, IN THE COST ALLOCATION RULES, INVOLVES A 
RESTRICTION ON NON-FEDERALLY FUNDED ACTIVITIES. CURRENT LIMITA- 
TIONS ON LOBBYING EFFORTS GENERALLY APPLY ONLY TO ACTIVITIES 
DIRECTLY SUPPORTED BY GRANT FUNDS. OMB WOULD CHANGE THESE 
RESTRICTIONS TO INCLUDE NON-FEDERAL FUNDS. FOR EXAMPLE, IF AN 
EMPLOYEE'S SALARY WAS SUPPORTED ENTIRELY BY FEDERAL FUNDS AND 
HE OR SHE SPENT AS LITTLE AS 10 PERCENT OF HIS OR HER TIME 
ON "POLITICAL ADVOCACY", THE NEW RULES WOULD PROHIBIT REIMBURSE- 
MENT OF ANY PART OF THE EMPLOYEE'S SALARY — NOT JUST THE 10 PERCENT. 
EVEN WHERE THE EMPLOYEE'S SALARY IS PAID PARTIALLY WITH NON-FEDERAL 
FUNDS, IF THE EMPLOYEE SPENDS ANY TIME ON "POLITICAL ADVOCACY", 
NO PART OF HIS OR HER SALARY CAN BE REIMBURSED UNDER THE FEDERAL 
GRANT. 

IN THESE PROPOSED RULE CHANGES, OMB HAS EXCEEDED ITS "POWER 
TO ADOPT REGULATIONS TO CARRY INTO EFFET THE WILL OF CONGRESS AS 
EXPRESSED BY STATUE". IN GENERAL, NO LEGISLATION RESTRICTS THE 
RIGHT OF NON-PROFIT ORGANIZATIONS RECEIVING FEDERAL GRANTS OR 
CONTRACTS TO LOBBY OR OTHERWISE PARTICIPATE IN THE GOVERNMENTAL 
DECISION-MAKING PROCESS. IN FACT, WHERE CONGRESS HAS SUPPORTED 
CERTAIN RESTRICTIONS ON LOBBYING, THEY HAVE NEVER BEEN AS 
SEVERE AS THOSE PROPOSED BY OMB, FOR EXAMPLE, THE HEAD • START 
ACT, WHILE PROHIBITIING VOTER REGISTRATION AND OTHER POLITICAL 
ACTIVITIES, SPECIFICALLY LIMITS THIS PROHIBITION ONLY TO "THAT 
PORTION OF THEIR EMPLOYEES TIME FOR WHICH THEY RECEIVE COMPEN- 
SATION PROVIDED DIRECTLY OR INDIRECTLY UNDER THE AUTHORITY OF 
THE ACT" . 



18 



IN ADDITION, THE PROPOSED RULE, DENYING GRANTEES REIMBURSEMENT 
FOR THE COST OF ENTIRELY PROPER, NON-POLITICAL GRANT ACTIVITIES 
IF THEY EXERCISE THEIR FIRST AMENDMENT RIGHT OF EXPRESSION, RAISES 
STRONG CONSTITUTIONAL QUESTIONS. LIMITING "FREEDOM OF SPEECH", 
BY THE THREAT OF A LOSS OF GOVERNMENT GRANTS OR CONTRACTS, SERVES 
NO COMPELLING GOVERNMENT INTEREST, EXCEPT TO ELIMINATE CRITICISM. 
GOVERNMENT-LED EFFORTS TO STIFLE CRITICISM HAVE NO PLACE IN A 
DEMOCRATIC SOCIETY. NO ONE DENIES THAT LIBERAL, NON-PROFIT GROUPS 
WILL BEAR THE BRUNT OF THESE NEW RULES. MOST CERTAINLY, THE 
ADMINISTRATION IS AWARE OF THIS REALITY AND IN FACT, "DEFUNDING 
THE LEFT" IS PROBABLY ONE OF THE MAJOR POLITICAL RATIONALES BEHIND 
THESE PROPOSED RULE CHANGES. GROUPS, UNWILLING TO FORFEIT 
THEIR FIRST AMENDMENT RIGHTS, WILL CEASE TO PARTICIPATE IN 
FEDERALLY-FUNDED PROGRAMS AND IT WILL NOT BE "THE LEFT" OR LIBERAL 
GROUPS WHO ARE THE REAL LOSERS BUT THE MILLIONS OF AMERICANS WHO 
ARE SERVED BY THESE PROGRAMS. THOUSANDS OF GOVERNMENT PROGRAMS 
AND SERVICES ARE NOW ADMINISTERED THROUGH NON-PROFIT ORGANIZATIONS. 
SHELTERED WORKSHOPS, JOB TRAINING PROGRAMS, HOME-CARE SERVICES 
FOR THE ELDERLY AND MANY OTHER ACTIVITIES COULD NOT FUNCTION WITHOUT 
THE INVOLVEMENT OF NON-PROFIT ORGANIZATIONS. 

AS LEGISLATORS, WE HAVE A RESPONSIBILITY TO ENSURE THAT 

CONGRESS RETAINS "THE POWER TO MAKE LAW" AND NOT THE 

EXECUTIVE BRANCH AGENCIES. REGULATIONS ARE NO SUBSTITUTE 
FOR LEGISLATION. OMB ' S NEW RULES CLEARLY MOVE BEYOND 
CONGRESSIONAL INTENT IN RESTRICTING THE USE OF FEDERAL GRANTS 
BY NON-PROFIT ORGANIZATIONS. THEY ALSO INFRINGE ON CONSTITU- 
TIONALLY-PROTECTED RIGHTS OF "FREEDOM OF SPEECH". SUCH 
RESTRICTIONS MUST BE ACTIVELY OPPOSED BY CONGRESS. HOPEFULLY, 
TODAY'S HEARING WILL SERVE TO EXPOSE THESE RULES AS BAD PUBLIC 
POLICY AND WILL LEAD TO THEIR WITHDRAWAL. 

I AM THANKFUL FOR THIS OPPORTUNITY TO PRESENT MY VIEWS 
TO THE COMMITTEE ON THIS IMPORTANT MATTER. 



19 

Mr. Brooks. Our next witness this morning is Congresswoman 
Pat Schroeder from Colorado's 1st District. She was elected to the 
93d Congress in 1972, and in the past 10 years she has compiled a 
distinguished record both in her service on the Armed Services 
Committee and on the Post Office and Civil Service Committee 
where she is chairwoman of the Subcommittee on Civil Service. 

She is a Phi Beta Kappa graduate of the University of Minnesota 
and has a law degree from Harvard University. 

Pat, we look forward to hearing you this morning. 

STATEMENT OF HON. PATRICIA SCHROEDER, A REPRESENTA- 
TIVE IN CONGRESS FROM THE STATE OF COLORADO 

Mrs. Schroeder. Thank you very much, Mr. Chairman. I too 
would like to ask unanimous consent to put my statement in the 
record and just summarize. 

Mr. Brooks. Without objection. 

Mrs. Schroeder. I want to say that I can't salute the chairman 
enough for having the tenacity to move forward and protect free 
speech and the right to petition. I think that is what they forgot 
when they drafted this regulation. The chairman has always been 
very, very good about not being bulldozed by anybody. I thank you 
for moving forward and making sure this is aired, rather than de- 
ciding that we could just put it away and hope the next regulation 
won't be so oppressive. 

What is so disconcerting to me about all of this is that if you look 
at this and put it together with the regulations about the Com- 
bined Federal Campaign that came out at the same time, they 
really have gone way, way too far. Other people have said that but 
let us talk about how in the world could you hold yourself out as a 
group trying to serve Vietnam veterans, for example, if you can't 
testify on disability coverage for agent orange. You couldn't. 

How could you possibly be out working to shelter the homeless, 
going out to get funds for the shelters and not be allowed to come 
down here and tell Members of Congress what will happen if they 
shut off the funds for the shelters. They will be right back with the 
homeless, back on the street. You can't do that. 

If these groups are out really trying to serve segments of our so- 
ciety whether they are Native Americans, or blind people, or Viet- 
nam veterans, or the homeless, what have you, they have a duty to 
be an advocate. And being an advocate is not necessarily being a 
lobbyist. I think we have to go way back to the drawing board and 
start all over again. The way I read this regulation if one phone 
call was made on an organization's telephone, it wouldn't be al- 
lowed to pay for any part of that phone bill with any kind of Gov- 
ernment money. If one letter was written by one staff member, no 
money could go to that staff person's salary. As I said drawing the 
line between legitimate advocacy and lobbying is very difficult. I do 
not believe it can be done. I do believe what you are doing here is 
really making a political statement. If you are saying you are only 
going to honor the organizations that won't attack anything the 
Government does, what you said is you really want a bunch of lap 
dogs. These organizations were out there to be advocates to protect 
their people, not to protect the Government. 



20 

So what you are doing is forcing these advocacy agencies to 
become protectors of the Government. They are not supposed to 
tell us what they are doing. They are not supposed to tell them 
how we flub up. 

So I think that's what really this regulation is saying. It is a si- 
lencing of criticism. It is very critical under the first amendment. 

If I look at these regulations and also look at the Combined Fed- 
eral Campaign regulations and also look at legislation we will be 
taking up this week, some very interesting things happen. As you 
know in the appropriations bill this week, we will be putting $50 
million out for the homeless. We will be giving it to private organi- 
zations to try and channel it out for the homeless because we fig- 
ured that they knew how to do it best. 

Now, I think, the way I read the CFC regulations and the way I 
read OMB A-122 circular, those organizations will never be al- 
lowed to participate in the Combined Federal Campaign or get Gov- 
ernment grants again because the United Way and the Red Cross 
and so forth came here, talked to Members of Congress, said we are 
in the business of providing this kind of shelter, we know what to 
do; Members of Congress said terrific, we will give the money di- 
rectly to you. I think that would be considered lobbying and advo- 
cacy under the CFC rules or Circular A-122. 

So next year they may find themselves not in the Combined Fed- 
eral Campaign and if they are operating under A-122, which we 
now hear is going to be pulled, they will be in great trouble there. 

So this really goes way too far. I don't think we can go around 
and just prefer advocates that don't advocate, and that is really 
what we are saying if this thing goes through. I really salute the 
chairman and this committee for bringing it to the attention of the 
Office of Management and Budget that once again their vendetta 
may have gone much too far, that no one has any problem with 
real reform, but it can't go that far out of line and I really compli- 
ment you for getting right to it. 

Mr. Brooks. I want to thank you very much, Mrs. Schroeder. 
You are very gracious to come down and we appreciate your help. 

[Mrs. Schroeder's prepared statement follows:] 



21 



STATEMENT OF REP. PATRICIA SCHROEDER 
Before the Subcommittee on Legislation 
and National Security, Committee on 
Government Operations on 



Chairman Brooks and members of the Subcommittee, 

I am grateful for the opportunity to testify today about the Administration's 
manifest intolerance of political opposition and its recent efforts to surpress'it. 
Chairman Brooks is to be commended for holding these hearings. I trust that his 
efforts to curb the excesses of political regulation proposed by this Administration 
will not end with today's session. 

These hearings are primarily about a proposed revision of the Office of 
Management and Budget (OMB) Circular A-122, "Cost Principles for Nonprofit 
Organizations," to prohibit any government money from going to political advocacy. 
The revision of Circular A-122 brings with it revisions of Defense Department, 
National Aeronautics and Space Administration, and General Services Administration 
regulations dealing with procurement. These OMB regulatory changes come hand in 
hand with President Reagan's February 10, 1983, revision of the Executive order 
dealing with the Combined Federal Campaign. Taken altogether, these changes 
represent a concerted effort to defund anyone who is likely to disagree with the 
Administration. This attitude is summed up by a story I heard concerning the 
chief OMB drafter of the Circular A-122 revisions. He was asked about a large 
nonprofit organization which provides by contract, a substantial amount of high 
quality job training for the Federal government. The OMB official repudiatedly 
said, "They're great when they provide job training, but why do they have to go 
to the Hill to lobby against our budget cuts?" 

The problem with the Circular A-122 revisions lies not in its basic policy, 
i.e., that government money should not go to subsidize political advocacy. This 
policy statement merely begs the questions. Obviously, tax dollars should not go 
to support directly the lobbying efforts of the Heritage Foundation or Americans 
for Democratic Action. Does this mean that contributions to these organizations 



22 



should not be tax deductible? The challenge j 9 translating this principle inv 
workable regulations governing the awarding of grants and contracts. The OMB 
proposal of January 24, 1983, makes no reasoned effort to balance First Amendment 
protection of citizens organizing to petition their government with the prohibition 
on government directly subsidizing advocacy. Rather, this proposal is extreme, 
unworkable and punitive. And, it is structured in a way guaranteed to hurt liberal 
organizations more than conservative ones, small businesses more than big businesses, 
and poor organizations more than rich ones. Others will go into the discriminatory 
effect of the regulations in greater detail. Suffice it to say that, while these 
regulations will impose new, high, and inflationary costs on everyone who does 
business with the government, it will not put General Dynamics or United Way out 
of business. It may very well price health, educational, and welfare organizations, 
as well as small businesses, out of the market. If one lobbying phone call is made 
on an organization's telephone, the regulations would prohibit the use of any govern- 
ment grant money to pay for any part of that phone bill. Where a staff member 
writes one letter to the local member of Congress, no portion of that staff member's 
salary can be supported by grant or contract funds. This is not sound contract 
management, as claimed by OMB; rather, this is political witchhunting. 

The other piece of this attempt to defund political enemies comes in a new 
Executive order limiting participation in the Combined Federal Campaign (CFC) so 
that "agencies that seek to influe-'ie the outcome of elections or the determination 
of public policy through political activity or advocacy, lobbying or litigation on 
behalf of parties other than themselves shall not be eligible to participate in the 
Combined Federal Campaign." This statement is so broadly written that there is 
doubt whether traditional CFC recipients, such as United Way and American Cancer 
Society, can continue to participate. I do not know how the Office of Personnel 
Management can write regulations around this statement which will allow these 
organizations to participate. In announcing the new order, however, the Office 
of Personnel Management (0PM) said it was intended that "advocacy groups that 



23 



have been admitted to the CFC in recent years will be excluded from the campaign." 

What I don't understand is how an organization dedicated to serving the needs ~" 
of any group in need of special governmental assistance, say Vietnam veterans or 
blind people, or American Indians, or the homeless can do its job without becoming 
involved in legislative affairs. It strikes me as naive to say a group trying 
to help Vietnam veterans can provide direct counseling but cannot lobby for dis- 
ability benefits for the victims of Agent Orange. It is silly to say that the 
Community for Creative Non-violence can get money to shelter the homeless in 
Washington only so long as they do not lobby against budget cuts which will close 
shelters. The Appropriations bill, providing money for jobs, which we will vote 
on this weeX contains a section which provides $50 million for food distribution 
and emergency shelters distributed by a board consisting, in part, of six non- 
profit organizations, including United Way of America, the Salvation Army, and 
the American Red Cross. Did this money for essential assistance to the homeless 
and hungry get in the bill by magic, or did the organizations which know the need 
the best convince members of the Appropriations Committee that there was a job to 
be done and they could do it? The latter is the case. Groups, like United Way, 
worked with the Congress to appropriate needed money. Yet, these organizations 
now may become ineligible for inclusion in the Combined Federal Campaign because 
they advocated appropriations for the homeless and hungry. Indeed, Circular A-122 
could be construed to apply to the $50 million contained in this legislation. If 
so, the groups' involvement in drafting the bill could render them ineligible to 
receive the money. 

The First Amendment to the Constitution protects the right of citizens to 
organize and to petition the government for a redress of grievances. This 
Administration seems to view the First Amendment in the narrowest possible way: 
that the government can and should do whatever it can to stiffle political discourse 
through withdrawing money from unquestionably non-political activities if the 
recipient spends any other money to engage in First Amendment protected activities. 



24 



So long as the government does not make it criminal to petition the government, 
the Reagan Administration believes that it is fine to withhold benefits from those 
who exercise this right. My own view of the First Amendment and the policy under- 
lying it is that government should encourage and facilitate robust public discourse 
and sharp political debate. So long as the government does not prefer one advocate 
over another in terms of granting contracts or grants or in permitting them to 
participate in the Combined Federal Campaign, I see no reason to exclude advocacy 
groups from these programs. Rather, I believe the First Amendemnt tells us to 
allow such groups to participate. Indeed, looked at in another way, by only 
permitting the participation of non-advocacy groups, the government is, in fact, 
favoring one political position over another. It is favoring those who do not . 
see fit to criticize the current Administration; it is favoring those who want to 
do what the Administration wants to do, i.e., preserve the status quo. This aspect 
is particularly troubling. 

I urge this committee to tell the Office of Management and Budget to stop 
its political vendetta against those who oppose the policies of this Administration. 
Democracy cannot long tolerate a campaign of political vengence, especially when 
it comes at the expense of the First Amendment. 



25 

Mr. Brooks. Jim, do you want to make a statement right now? 
Come on and do that. We are delighted to hear at this time from 
Congressman Jim Moody, a distinguished new Member of Congress, 
interested in consumer affairs and dedicated to better government. 
We will be pleased to enter your prepared statement in the record. 

STATEMENT OF HON. JIM MOODY, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF WISCONSIN 

Mr. Moody. Thank you, Mr. Chairman. Let me make this brief. 
A number of nonprofit organizations in Wisconsin met this week- 
end to express strong opposition to these proposed regulations. I 
want to make just two points. 

First, I think these regulations are clearly a violation of the 
spirit with which this administration came into office. Namely, 
that we would rely on the nonprofit and voluntary organizations to 
provide the vitality to fill the void left by the administration's atti- 
tude that the private sector, and not the Government, should per- 
form certain functions. It is therefore inappropriate that we now 
see this administration attempting to stifle that sector which is so 
important indeed. It is probably also unconstitutional under most 
interpretations. 

My second point is that it is dysfunctional. It is dysfunctional to 
ask agencies that are out in front of the firing line helping to solve 
social problems to not communicate back to the Government what 
the problems are with current policies. After all, effective control 
of any organization or any activity requires a two-way communica- 
tion. If you do not let the implementing organizations tell the Gov- 
ernment what is wrong with a policy and how it should be 
changed, the corrective changes that are needed will not be made. 
It would be like setting a plane for a distant flight on automatic 
pilot and not allowing any adjustment in the navigational direc- 
tions. So the regulations are not only in violation of the spirit of 
the voluntary approach to government that this administration 
touted, they are also dysfunctional and very counterproductive. 

Thank you, Mr. Chairman. 

Mr. Brooks. Thank you very much, Congressman. We are de- 
lighted to have had you here. 

[Mr. Moody's prepared statement follows:] 



26 



Congressman Jim Moody 

Testimony before the 

SUBCOMMITTEE ON LEGISLATION AND NATIONAL SECURITY 

Committee on Government Operations 

March 1, 1983 



Mr. Chairman, members of the Subcommittee, I want to 
express my strong opposition to the Office of Management and 
Budget Circular A-122, the proposed amendments to its "Cost 
Principles for Nonprofit Organizations". 

This proposal would so restrict the use of Federal funds 
for "political advocacy" or lobbying that nonprofit groups 
would be virtually prohibited from making any governmental 
contact whatsoever. Those affected include not only a large 
number of nonprofit organizations in my district, but a 
broad spectrum of groups from every part of the country, from 
Boeing aircraft to Planned Parenthood. 

Under Circular A-122, the definition of "political advocacy" 
has been stretched to the point of being overly broad and 

vague thus raising serious constitutional questions. In 

fact under OMB ' s definition it is nearly impossible to 
distinguish true service work from advocacy. Since many of the 
activities undertaken by nonprofit groups require some 
communication with public officials, this definition only 
distorts those activities to the point of discouraging precisely 
what Congress originally intended to encourage. 

The Reagan Administration has so broadly defined "political 
advocacy" that many organizations would forego all politically- 
related efforts rather than risk loss of federal monies. 
The definition embraces nearly any statement or action by 
any federal contractor or grantee that would have any effect 
on any political body. Even if groups are funded for the 
most part by private contributions, the fear of losing federal 
funds would have a "chilling effect" on speech, actions, 
publications and other contacts. If only 5% of an employees 
time is spent on "advocacy", none of that employee's salary 
may be paid with federal funds. This is true even if these 
activities are necessary related to the purpose of the federal 
contract or grant. Finally, this definition places the 



27 



burden on the recipient of the funds to show that no "political 
advocacy" has taken place. 

I am particularly concerned that the Circular will be 
fatal to smaller voluntary groups which depend upon federal 
grants or contracts for their very existence. Under the 
proposed OMB regulations these groups would need to hire a 
separate staff and conduct even remotely related activities 
from separate facilities — a situation which would be expensive 
and impractical at best, and in some cases, totally impossible. 

In addition, this regulation creates an administrative 
nightmare for those who would have to enforce its sanctions. 
I know of no effective organization whose chief executive 
could or would disqualify him or herself from either the 
direct service side or the advocacy side. All channels of 
communications would have to be drastically altered. Can 
you imagine the head of either the Ford Motor Company or the 
Ford Foundation completely divorcing himself from any advocacy 
activity with government? 

This regulation would in fact be dysfunctional. The 
free flow of information from implementing agency to government 
is vital if there are going to be necessary corrections and 
adjustments in programs. This feedback device and two-way 
information flow is an important and productive part of govern- 
ment purposes being carried out by non-government agencies, but 
Circular A-122 would make it become a tainted, almost immoral 
activity. To deny two-way communication would be like setting 
a plane on automatic pilot and not checking and rechecking 
during the flight to make sure the plane is still on course. 

In conclusion, Mr. Chairman, I would like to say that 
the negative reaction in my district to this proposal has 
been strong and across the board. I have joined with a 
bipartisan group of my colleagues in sending a letter to the 
President expressing our concerns. Large and small groups 
representing every type of constituency, recognize the counter- 
productive nature of Circular A-122. Not only would the 
people who the nonprofit groups serve be sorely hurt but our 
government's ability to reshape and correct programs would 
be reduced. 

For these reasons I am opposed to OMB's proposal and urge 
this subcommittee to send a strong and clear message to the 
White House and to the OMB. 



20-644 0—83 3 



28 

Mr. Brooks. Our next witness was supposed to have been Mr. 
David Stockman, Director of Office of Management and Budget. On 
February 16 I wrote a letter inviting him to appear before the sub- 
committee this morning to defend the OMB's proposal on cost prin- 
ciples for nonprofit organizations. 

Apparently he preferred not to appear before this subcommittee 
and assumed that in his place he could send the Deputy Director of 
OMB Joe Wright, who is neither responsible for overall operation 
of the agency nor the author of this proposal. In several discussions 
last week between the committee staff and OMB officials, it was 
emphasized that the request was for Mr. Stockman to come down 
briefly and discuss the matter. But the determination of whose tes- 
timony is needed for us to carry on oversight and legislative re- 
sponsibilities is ours to make, not the administration's. And OMB 
cannot simply assume that they can determine who they want to 
send. 

Last night Joe Wright reached me at home and requested that 
he be substituted as the OMB witness. He was in California, flew 
in on the midnight express and he looks pretty good, considering 
that. He assured me that he is the person at OMB responsible for 
this area, and he can speak with the full authority of the agency. 
Apparently Mr. Stockman takes little interest in the management 
side of OMB, but concentrates his energies on the budget side. 
While I personally feel that the head of any agency should be fully 
responsible for all activities of the agency, I have agreed to have 
Mr. Wright testify. I told him last night to come on in as we would 
be delighted to have him. 

But I just want the OMB to understand that we may call Mr. 
Stockman back sometime and when we do, we would hope that he 
could be here. 

I would like to introduce Mr. Wright at this time. He was Deputy 
Secretary of Commerce, Assistant Secretary for Administration of 
the Department of Agriculture and Acting Assistant Secretary for 
Economic Affairs at the Department of Commerce. He has also 
held responsible positions in private industry in the area of man- 
agement consulting and credit card retail marketing. He is accom- 
panied by Bob Bedell, Deputy General Counsel of OMB. Did Mr. 
Michael Horowitz, the OMB Special Counsel, come down with you, 
Mr. Wright? 

Mr. Wright. No, sir, Mr. Chairman, he is not with us this morn- 
ing. 

Mr. Brooks. The gentleman is recognized. 

STATEMENT OF JOSEPH R. WRIGHT, JR., DEPUTY DIRECTOR, 
OFFICE OF MANAGEMENT AND BUDGET, ACCOMPANIED BY 
BOB BEDELL, DEPUTY GENERAL COUNSEL 

Mr. Wright. Mr. Chairman, it sure is good to see you again. 

Mr. Brooks. Always a pleasure to have you, Joe. 

Mr. Wright. There is one advantage of taking the redeye from 
California and that is you get kind of numb when you come on in. 

I sincerely am delighted to be here, because I think the process 
that we have gone through, like Congressman Horton said, on this 
issuance of changes to A-122, has been the tough way. We will be 



29 

issuing new draft regulations in a couple of weeks, going through 
the process all over again. But this did get us into a hearing before 
this distinguished group and my guess is that you are going to see 
some very honest opinions that are going to be stated by both sides 
of the aisle, both the business community, from the procurement as 
well as the nonprofits. And, Mr. Chairman, we feel like this is 
probably going to be very useful and we would like to concentrate 
on the need for some revisions to A- 122 and do it in a very con- 
structive manner. 

I would like to submit my testimony for the record, if I may 

Mr. Brooks. Without objection. 

Mr. Wright. Thank you. In there I include some of the Comp- 
troller General's opinions on the subject, also the press release that 
we came up with last Friday stating our intent to go ahead and 
issue new draft regulations and delay the time for what will be in 
effect another 60 days from approximately right now. 

The purpose of the proposed amendment to the OMB Circular A- 
122 is to make it clear that no appropriated funds are spent direct- 
ly or indirectly to support lobbying or related activities. So far 
from both yourself, Mr. Chairman, Mr. Horton and the earlier wit- 
nesses, I have not heard a disagreement with that basic intent. So 
at least we are starting in the same direction. 

I do agree that the first revisions went too far and there are 
some changes that are going to have to be made. The question that 
comes up continually is, why are these changes needed? Mr. Chair- 
man, this is not an unusual precedent that we are setting in OMB 
in trying to better define cost principles. This is a third issuance of 
an OMB circular on trying to better define cost principles for Gov- 
ernment agencies and cost principles apply whether they be pro- 
curement institutions, nonprofits and so forth. 

The first one was Circular A-21, which came up in the late 
1950's, which established the cost principles for educational institu- 
tions. The second one in the late 1960's was A-87, which estab- 
lished cost principles for State and local governments. Circular A- 
122 which came out in 1980 under the prior administration estab- 
lished the cost principles for nonprofit organizations. 

Now, the problem that we found ourselves in is that the current 
rules are not necessarily clear, they are not uniform, and they are 
neither enforceable nor a deterrent toward using appropriated 
funds for lobbying. We believe that many of the decisions of the 
Comptroller General support our reading of the current law, and 
our assessment of some of the current problems. We are convinced 
that an effort to prohibit taxpayers' funds from being used to pay 
the costs of lobbyists is a worthwhile effort. 

Now, the way to get that done should be really what we are 
working on today. So we are not coming out with a new A-122 that 
can be withdrawn like you suggested. That would be wrong because 
A-122 basically consists of definitions of cost principles that apply 
across a wide range of categories. What we are focusing on is the 
changes that would be made to put in better definitions of those 
costs that are used improperly for lobbying. And that is all. Not 
the rest of A-122. 

The proposal that we came out with does two things. It clearly 
states that the costs of political advocacy are not allowed to be 



30 

charged to Government contracts or grants, either directly or indi- 
rectly. Now, on that one we haven't seen a lot of disagreement. 

The second part would preclude the use of Federal funds for the 
payment of costs of items such as salaries or facilities also used for 
political advocacy, and that, right there, is where the firestorm 
started. 

The comments we have received so far, that we will receive 
during this hearing and I am sure during the next few weeks, indi- 
cate that we must revise our approach on this second point. Fur- 
thermore, we must restrict the definition of political advocacy basi- 
cally to grassroots lobbying and efforts to influence the Congress 
only. 

Because of the extent of these changes, we have decided, like I 
mentioned, to revise this proposal. We will come out with it in sev- 
eral weeks. We will permit another 45 days for public comment. 
The final revisions will probably be coming out in 4 or 5 months, 
sometime during the summer. We do not affect — or these changes 
will not affect any programs that are funded this year, and that is 
an important point. 

And beyond that, Mr. Chairman, I would say that I would be 
more than happy to answer any questions, take any suggestions 
you have and we would like very much to work with this commit- 
tee in coming up with those revisions which are appropriate to the 
entire cost definition package of A-122, to fit what I perceive is the 
common goal as you established in the beginning — and that is to 
insure that improper lobbying does not occur with Federal funds. 

[Mr. Wright's prepared statement follows:] 



31 



•' ■■©•• V EXECUTIVE OFFICE OF THE PRESIDENT 

l*3~S}* OFFICE OF MANAGEMENT AND BUDGET 

'■ .^P»* ..? WASHINGTON, D.C. 20SO3 



TESTIMONY OF JOSEPH R. WRIGHT, JR. 
DEPUTY DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET 
BEFORE THE HOUSE COMMITTEE ON GOVERNMENT OPERATIONS 

MARCH 1, 1983 



Mr. Chairman and Members of the Committee: Thank you for 
the opportunity to appear today to explain the purpose of our 
proposed revisions in Circular A-122 and to*hear your comments 
and questions. This is an area of great complexity and 
sensitivity, and I would like to assure the Committee at the 
outset that we are by no means committed to the precise terms of 
the published proposal. Our Federal Register notice of January 
24 was just that: a solicitation of comments. As I will 
explain further in a moment, already we have identified a number 
of areas in which significant revisions in the proposal will 
need to be made, and intend to publish revisions in the 
proposals for further comment within the next two weeks. 

Nonetheless, I would like to emphasize the Administration's 
belief that the use of federal funds for political advocacy 
purposes should be curbed. Not only is it a misuse of the 



32 



taxpayers' money — particularly in these days of fiscal 
stringency — but government subsidy of the political advocacy 
activities of particular private companies or organizations can 
distort the political process. It is unfair for contractors or 
grantees to use taxpayers' money to support causes that the 
taxpayers may not agree with. This Administration is committed, 
as Director Stockman's memo of April 26, 1982 confirms, to the 
priciple that grants and contracts should be awarded to those 
parties which are most effective in fulfilling statutory 
purposes, regardless of the extent or nature of their political 
advocacy. This does not mean, however, that we should pay for 
this advocacy. 

The diversion of taxpayers' money to private political purposes 
is not a new problem to us, and it is not a new problem to 
Congress. The General Accounting Office uncovered grantee 
violations as long ago as 1948. Over the past ten years, some 
40 to 50 riders have been attached to appropriations bills to 
address some parts of the problem. After a recent investigation 
into political advocacy activities by grantees under Title X of 
the Public Health Service Act, the Comptroller General issued 
the foliowinq recommendation: 



Clear federal guidance is needed both to 
ensure that Title X program funds are not used 
for lobbying and to preclude unnecessary 
controvery over whether grantees are violating 
federal restriction. The move to revise and 
make more specific the cost principles 
applicable to all federal grantees is the 
appropriate mechansim to achieve these ends. 



33 



This investigation and recommendation show the need for 
improvements in the treatment of political advocacy costs in the 
current A-122 cost principles, since they have been in effect 
since 1980 and applied to the grantees under investigation. Our 
proposals are intended to achieve these ends — to protect the 
taxpayer, to enforce restrictions passed by Congress, and to 
provide a consistent and comprehensive approach to treatment of 
costs associated with political advocacy by grantees and 
contractors. As the intensity of reaction by affected groups to 
our notice has shown, our task is not an easy one. But with the 
help of comments from the public, from this Committee, and from 
interested parties, we believe we can make a significant, fair, 
and workable step toward our commonly-accepted objective of 
ensuring that the expenditure of federal funds through grants 
and contracts does not result in an improper advantage to one or 
another participant in the political marketplace of ideas. 

Allow me to review the current state of laws and procedures 
for the control of funds going to political advocacy. There are 
two generallly applicable federal laws covering lobbying with 
appropriated funds: one criminal — Section 1913 of Title 18 of 
the united States Code, one a restriction on use of 
appropriations — currently Section 607(a) of the Treasury, 
Postal Service, and General Government Appropriations Act, as 
incorporated in the continuing resolution. In addition, 
Congress has enacted lobbying restrictions applicable to 
specific agencies, especially those with a history of problems 
in this area. Nonetheless, abuses of the system have been 

frequent and disturbing. 



34 



o In its investigation of family planning grantees 
order Title X of the Public Health Service Act last 
fall, the General Accounting Office audited seven 
representative grantees and found that all seven 
had incurred questionable expenses in connection 
with political advocacy. Federal funds were used 
for dues to lobbying organizations, for direct 
lobbying at the federal and state levels, for 
organizing writing campaigns to Congress, and for 
other political activities. Perhaps most alarming 
is that accounting systems under current procedures 
are so confused that GAO could not determine in two 
cases whether the organizations' lobbying involved 
federal funds or not. 

o On the defense side, in a recent investigation 
of Lockheed's lobbying campaign on the proposed $10 
billion procurement of the C-5A aircraft GAO found 
that nearly half a million dollars in lobbying 
costs were included in the company's overhead 
expenses — 54% of which would be picked up by the 
federal taxpayers. Moreover because of the 
commingling of improper lobbying activities with 
legitimate "contract work and the inability of the 
current system to enforce rigorous distinctions, 
GAO was unable to determine the amount of employee 
time improperly used. 



35 



o The same investigation revealed that Boeing, 
lobbying on the other side of the issue, also 
incurred political advocacy expenses which it 
sought to charge input to the government through 
overhead accounts. 

o In audits released to Common Cause by the 
Defense Department under the Freedom of Information 
Act concerning the political activities of ten 
defense contractors in 1974-75, auditors had 
discovered over $2 million in questionable expenses 
charged to the government related to lobbying, 
including the cost of goose hunting trios in 
Maryland, a film praising the B-l bomber, and 
decorations for a "Sky Suite" at the Capital Center 
Sports Arena. 

o In 1980, the Food Research and Action Center, a 
Community Services Administration grantee, used 
federal funds for generating a public campaign 
against the Department of Agriculture's pilot 
"workfare" program, including a call to "monitor 
and hassle" workfare projects and to campaign at 
the state and county levels to block applications 
to be part of the pilot project. 

o In 1981, the American Health Planning 
Association solicited federally funded health 
systems agencies for increased contributions for a 
lobbying campaign. At least 14 of the agencies 
responded with federal funds. 



36 



o This is only the tip of the iceberg — only a 
few of the instances in which a Member of Congress 
or the public caught wind of a possible violation, 
and it could be documented. I can provide this 
Committee with numerous instances of apparent 
questionable practices — cases in which recipients 
of federal grant or contract money engaged in 
political advocacy activities and may well have 
employed federal funds. Sources as diverse as 
Common Cause magazine, the Conservative Digest, and 
the Washington Post have confirmed the problem and 
called out for reform. 

What are the deficiencies in current procedures? Why is a 
new approach needed? In our reflection on the problem, and 
careful study of GAO and other recommendations, we have 
recognized several problems with current cost principles that 
have made it difficult to detect — and inded have invited -- 
diversion of federal funds to political advocacy. 

First, there is currently no uniform, comprehensive policy 
on the treatment of costs associated with political advocacy. 
The clear signal from Congress through appropriations laws and 
other actions has not been translated into management controls. 
Grant and contract making agencies do not, as a routine matter, 
incorporate political advocacy restrictions into award 
agreements or cost negotiations. There is no clear, uniform 
definition of prohibited activities to 



37 



which they can refer. In fact, in both of the major recent GAO 
investigations of improper expenditures for lobbying — the 
family planning and Lockheed cases — the contractor or grantee 
were able to urge that current rules did not ban the 
expenditures. One purpose of our proposal is to bring 
uniformity and coherence to this area. 

Second, under existing procedures, restrictions on the use 
of federal funds for political advocacy are exceedingly 
difficult to enforce. The commingling of grant or contract 
activity with political advocacy activity makes it very 
difficult for an auditor, after the fact, to determine whether 
federal funds were diverted to improper purposes. GAO reports 
have confirmed this. Moreover, even where violations were 
uncovered, the current sytem permits of no effective sanction in 
most instances. The recovery by the government of a small 
allocable share of costs wrongfully billed to the government 
provides no deterrent to misconduct, and in many cases is so 
small as not to justify enforcement at all. Thus, as you are 
aware, in a number of instances in which GAO has uncovered 
violations of this sort, it has been forced to recommend no 
corrective action. 

Third, even when existing restrictions on lobbying are 
fully enforced, the provision of a grant or contract to a 
particular organization can have the effect of subsidi-zing its 



38 



political advocacy activities. Clearer definitions of proper 
and improper expenses are needed to avoid inappropriate federal 
subsidies of political advocacy activities. 

Fourth, when government-funded projects or government-paid 
individuals engage in public political advocacy, especially at 
the grass roots level, it creates the appearance of government 
support for the subsidized positions. Therefore, it is not 
surprising that we have received letters from members of the 
public, who are understandably concerned when they see their tax 
money involved in projects that include political organizing for 
causes they may not support. 

Now, these are serious problems and I don't begin to 
suggest that we have worked out an ideal solution to them. 
There may be no ideal solution. The approach in our proposal 
has been to effect a greater degree of separation between 
political advocacy activities and grant or contract activities. 
The essence of our proposal is twofold: first, we make the 
direct and indirect costs of political advocacy unallowable on a 
government-wide basis. We have heard relatively few objections 
to this portion of the proposal. Second, we have proposed that 
the federal government not pay for grant or contract activity if 
that activity is conducted with personnel, equipment, or 
facilities also used for political advocacy. 



39 



It is the second portion of the proposal that has provoked 
the most comment, and we understand why. Let me make clear for 
the record that we appreciate the problems that would be 
entailed if the government refused to pay for goods or services 
it receives because of relatively minor, technical, or 
unavoidable contacts between the contractor or grantee and 
government officials. We intend to make major changes in the 
proposal to address this problem. 

On the other hand, let me also make clear for the record 
that the Administration is not simply content with the status 
quo, or with mere souped-up accounting and paperwork 
requirements that would make life difficult for smaller 
organizations but allow the larger entities with high-powered 
accounting firms to carry on business as usual. So, even as we 
recognize the need for substantial revisions in the proposal, we 
have not lost sight of the objective: to reduce the federal 
taxpayer subsidy to the political advocacy activities of private 
companies and organizations. 

Let me outline our current thinking on a revised proposal. 
Obviously, I cannot provide specifics on a revised proposal we 
have not yet completed. We are still developing ideas in 
response to public comments and suggestions. Nonetheless, I can 
share with the Committee some of the major areas we are 
rethinking. 



40 



First, we are considering a redefinition of "political 
advocacy" to exclude contacts with members of the Executive 
Branch. As far as direct communications with government 
officials are concerned, we may essentially confine the reach of 
the definition to legislative lobbying. This is in recognition 
that grantees and contractors have a wide variety of necessary 
and legitimate contacts with those who execute the laws, from 
checking with the Small Business Administration about progress 
on a loan application to arranging with local traffic officials 
for repair of a street light. After due reflection on the 
matter, we have concluded that it may not be possible to draw 
clear or understandable lines between political and 
non-political contacts with Executive Branch officials. 

Second, we are considering a modification in our proposal 
of requiring a full separation in use of equipment between 
political advocacy activities and grant or contract activities. 
As a practical matter, we have been persuaded that such a 
separation would lead to inefficient duplication of equipment -- 
with attendant increased costs to the taxpayer — as well as 
difficulties in enforcement. We will still provide that, to the 
extent that equipment is used for political advocacy, the 
allocable portion of the direct and indirect costs not be 
charged to the government. But we may not insist that grant or 
contract activities be conducted solely with equipment not used 
for political advocacy. 



41 



Third, we are considering moderating the effect of our 
proposal in the araa of personnel by applying the principle of 
separation only to registered lobbyists, persons who are 
effectively lobbyists, and persons engaged in public or 
so-called "grass roots" lobbying. We do not believe that the 
government should be paying any portion of the salary of a 
registered lobbyist. Nor do we believe that the Federal 
government should be paying any portion of the salary of a 
person significantly engaged in lobbying. We are considering 
various definitions of this, and specifically solicit comments 
and suggestions on this point. Finally, we do not believe the 
Federal government should pay any portion of the salary of a 
person who is publicly engaged in political organizing at a 
grass roots level. It could be viewed by many citizens as a 
breach of the public trust. Moreover, it is unnecessary, since 
the provision of goods and services to the government and the 
people does not, as a normal matter, necessitate political 
organizing. This is an easy line to draw, and will cause no 
hardship on legitimate operations of grantees or contractors. 
Of course, the proposal cannot apply to so-called "advocacy" 
grants, where Congress has specifically determined that 
organizational" activities of this sort should be supported. 

I would like to observe that this change in focus to grass 
roots lobbying and to direct lobbying on legislation is in 
accord with the basic thrust of congressional enactments over 
the last several decades. 



42 



Fourth, we are considering easing up on our proposal with 
respect to buildings and office space. Many affected parties 
have informed us that the proposed 5% limitation on political 
advocacy activity is too restrictive. On the other hand, we see 
no reason why the Federal government should help to defray the 
expenses of a facility devoted in major degree to political 
advocacy. Given the danger of subsidization of overhead and the 
appearance of government support and entanglement with private 
advocacy in such cases, we believe it is better policy to 
separate grant and contract activity from substantially 
political facilities. We are soliciting comments and 
suggestions on what an appropriate definition would be. 

We intend to maintain the proposed prohibition on the use 
of federal funds for dues, contributions, or costs of membership 
in organizations heavily involved in political advocacy, such as 
most trade associations and many nationwide advocacy groups. 
This principle is already applied to state and local government 
recipients under Circular A-87, and the GAO has urged that 
A-122 be made consistent. 



There are some who have argued that it is inappropriate 
for us to disallow any costs that would be allocable to a 
federal grant or contract. However, A-122 and other cost 
principles include many examples of costs which are not 
allocated, but simply disallowed on grounds of public policy: 
advertising, contributions, fund raising, entertainment, to name 
a few examples. 



43 



We believe that political advocacy costs, such as the salary of 
a registered lobbyist or the rent on a building substantially 
dedicated to political advocacy, should be treated similarly. 
This is not a punitive rule, but a preventative one: grantees 
and contractors can and should be able to comply without 
substantial interference with their legitimate, non-political 
grant or contract activities. 

We are open to other comments and suggestions from this 
Committee or other sources. As I think you will agree, the 
changes we are now considering from our original proposal are 
significant. Therefore, we have announced that we will publish 
modified proposals based on these ideas in several weeks. We 
will then provide a new 45-day comment period on these modified 
proposals, which will last until about two months from today. 
We have learned a great deal from the public comment period so 
far, and will remain open to constructive comments and 
suggestions over the period to come. 

Finally, for the record, Mr. Chairman, I would also like to 
submit the following documents: 

o A description of relevant Comptroller General opinions 
on the subject; and 

o The OMB release of Friday, February 25, including a set 
of questions and answers describing areas in which we 
intend to change the current proposal. 

This concludes my prepared testimony. I would be happy to 
respond to questions. 



20-644 0—83- 



44 

Mr. Brooks. Thank you, Mr. Wright. 

What groups and individuals did OMB consult with before draft- 
ing this proposal? 

Mr. Wright. Drafting of the proposal was primarily done inter- 
nally with consultation with our executive agencies. We were using 
the 45-day comment period to be able to get the opinions of those 
parties that would be affected on both the contract and the grant 
sides. 

Mr. Brooks. What statutory authority has OMB utilized to issue 
these proposed rule changes? 

Mr. Wright. OK, Mr. Chairman. Under the Budget and Account- 
ing Act and the Budget and Accounting Procedures Act, we believe 
that we have the statutory authority which has been exercised 
through the previous circulars that I mentioned and this has been 
also verified by the Department of Justice. 

Mr. Brooks. Would you give the specific citation, Mr. Bedell? 

Mr. Bedell. I believe it is 31 U.S.C. 18a and the following sec- 
tions. They stem back to the 1921 Budget and Accounting Act and 
the 1950 Budget and Accounting Procedures Act which provide au- 
thority for issuing plans, et cetera, for the efficient and economical 
functioning of the Government. Those authorities as you know 
were passed through to OMB through Reorganization Plan No. 2 of 
1970, and by delegation from the President, I believe the Executive 
Order was 11541 in 1970. 

Mr. Brooks. The reason I was trying to find some statutory au- 
thority is I may decide to introduce a bill to kill it. 

And I am still not sure that you have pinned down some statu- 
tory authority — there is a broad difference of opinion on that, you 
know, as to whether you have any statutory authority, really. 

But you are sure that that is where you are getting it from? 

Mr. Bedell. Yes, sir. 

Mr. Brooks. I want to be sure where it is, because dealing with 
that is the next step, you understand. 

Mr. Bedell. We are sure that we are authorized by those sec- 
tions to issue this circular, and many other circulars that you know 
we have issued for internal management purposes. 

Mr. Brooks. Why is proportional allocation between Federal and 
non-Federal funds acceptable for all other cost items but unaccept- 
able for lobbying expenses? 

Mr. Wright. I am sorry, Mr. Chairman, I am not sure I under- 
stand the question. 

Mr. Brooks. They use the computer for work in company ABC 
on a big contract they have for somebody else. They also use that 
computer for Government work and they allocate that portion of 
the computer's time to their Government costs. And you don't have 
any trouble figuring those kinds of thing out. Why is it that you 
want to treat lobbying differently and make it a special category? 

Mr. Wright. Mr. Chairman, I think there is a simple answer to 
that and that is we do not feel that it is appropriate, and obviously 
the Congress has not felt it is appropriate in the past, to use Feder- 
al funds directly or indirectly for lobbying purposes and influenc- 
ing legislation. 

Mr. Brooks. That is not a direct answer, Mr. Wright. 



45 

What I asked you was, why do you feel that you cannot allocate 
that portion of Government funding that is used for lobbying when 
you can very intelligently allocate computer time, and allocate ex- 
penses for typewriters and secretaries? What I want to understand 
is how you can do that so carefully and so beautifully in all other 
categories, but you can't do it in lobbying. I don't say that we 
should allow lobbying with Federal money. Don't put that in my 
mouth. I didn't say that. I said you should not. What I am saying is 
why do you think you cannot add up what they spend on lobbying 
and deduct it from their grants or from their total cost? 

Mr. Wright. Mr. Chairman 

Mr. Brooks. You understand what I am saying? 

Mr. Wright. Yes; I understand exactly what you are saying. You 
are kind of taking our position a little bit right now, the one that 
has caused us a lot of problems, because then you get into your al- 
location schemes and particularly when you get into some of the 
nonprofits or the smaller organizations, they are the ones that are 
saying they would have a very, very difficult time in that alloca- 
tion of dividing up lobbying versus nonlobbying. 

And that is one of the problems we have got. 

Mr. Brooks. Now, under this proposal only those who are invited 
in writing to comment on some matter would be free of the effects 
of it. Wouldn't that encourage cronyism and favoritism, and all the 
favorite — as Mrs. Schroeder says, "lap dogs" would be brought in to 
the table to eat Chuckie dog food. But the rest of them would be 
outside in the yard scrounging in the neighbor's garbage. 

Mr. Wright. Mr. Chairman, are you asking why we ask for com- 
ments in writing? 

Mr. Brooks. Yes. 

Mr. Wright. We are taking the comments both verbally and 

Mr. Brooks. No, no, when they are invited. Not comments in 
writing, invitations. They have to invite the lap dogs in to eat in 
the kitchen. 

Mr. Wright. Well 

Mr. Brooks. The rest of the dogs are out in the street hustling 
garbage. 

Mr. Wright. Like I said, Mr. Chairman, we are going to be 
making quite a few changes. 

Mr. Brooks. Another thing, if political abuses are as widespread 
as you suggest, and I do not agree that they are — why have you 
exempted some of the largest Federal fund recipients like universi- 
ties, hospitals, State and local governments? They hustle us all the 
time for big, big dollars. 

Mr. Wright. Mr. Chairman, I mentioned that there were three 
circulars and that one is Circular A-21, which was issued in the 
late 1950's to establish the cost principles for educational institu- 
tions. A-87 issued in the 1960's for State and local governments 
covered that area. So there is no reason 

Mr. Brooks. You deduct the lobbying expenses out of their 
grants, and so forth? How do you handle that? 

Mr. Bedell. That is unclearly provided for in 

Mr. Brooks. How is it provided? 

Mr. Bedell. Unclearly provided 

Mr. Brooks. Unclearly provided for. 



46 

Mr. Bedell. Yes, sir. In A-21 and A-87 it is not 

Mr. Brooks. Well, that is an honest statement. I appreciate it. 
And I agree. But it makes this one also look unclear. 

Mr. Bedell. The existing A- 122 or the proposed change to it? 

Mr. Brooks. The proposed change that's already recommended. 

Mr. Bedell. Yes, sir, we agree that in many respects it needs to 
be changed and hopefully clarified. 

Mr. Brooks. One other thing. Do you intend to restrict political 
advocacy by individuals as well as organizations that receive Feder- 
al funds? How about a veteran who receives a disability payment 
from the Federal Government or social security recipients who are 
getting payments from the Federal Government? Can they write to 
their Congressmen to volunteer their ideas about what the country 
ought to be doing? 

Mr. Bedell. Yes, sir. And that wasn't intended, I hope it wasn't 
covered by even the proposed amendments. 

Mr. Brooks. But where are they excluded if they get grant 
money? 

Mr. Bedell. Well, if they are part of an organization that is re- 
ceiving grant funds, then the organization would be covered, but as 
individuals receiving some type of compensation from the Govern- 
ment, they would not be covered. 

Mr. Brooks. Now, in your statement, Joe, you say that you are 
considering a redefinition of "political advocacy" to exclude con- 
tacts with members of the executive branch and you want to in- 
clude only contacts with the legislative branch. Most of these 
people don't feel like there is a lot of contact with the executive 
branch — either they agree with the administration or they know 
the administration is not going to agree with them. But it is Con- 
gress, it is the legislative branch that they want to talk with and 
you are going to limit it just to the legislative branch? Where is 
Congress going to get its information? Why can't legislators be 
open to suggestions of all of the divergent groups and opinions, so 
that we can get a valid conclusion? 

Mr. Wright. The problem we had with the executive branch, and 
again thh net was thrown out too far on this one, is that we have a 
very difficult time dividing out the conduct of normal business with 
the executive branch versus lobbying, and we have not been able to 
figure out how that division, or how that definition could be made, 
such that this could be enforced. 

With the legislative branch it is a little easier because what you 
have is registered lobbyists, you have a definition of what grass- 
roots lobbying is, and so we believe that we can focus on those pure 
lobbying efforts without restricting marketing activities that you 
will have in order to sell services to the executive branch or provid- 
ing them information that the legislative branch may request in 
the forms of hearings or written documents or whatever it is. 

Mr. Brooks. Sometimes it is only from registered lobbyists, as 
you describe them, that you get a full definition of the facts that 
represent their viewpoint. Sometimes the people at the grassroots 
don't have that kind of documentation either so they agree. I think 
that the truth is the truth whether it comes from a registered lob- 
byist in Washington who has 59 lawyers on his personal staff and 
has been here for 40 years practicing, or whether it is Joe Doe who 



47 

calls from home saying he is not for something, or he is for it. I 
think you are going to have trouble drawing that line. 

Mr. Wright. We have trouble 

Mr. Brooks. It is going to be difficult to say lobbying is lobbying 
is lobbying. 

Mr. Wright. Yes, we have trouble drawing this line 

Mr. Brooks. That line gets tough. 

Mr. Wright. Well, see, this was the purpose though, basically, 
for all 

Mr. Brooks. It is like my little boy on a computer playing a new 
game and the lines go all over — that's kind of the way this looks. 
This is not your best effort. I am glad you didn't have anything to 
do with it. You didn't draft this, did you? 

You did not draft this, did you, Joe? 

Mr. Wright. No, sir, I didn't. 

Mr. Brooks. Did you recommend it? 

Mr. Wright. Did I recommend this be drafted? 

Mr. Brooks. Did you ask Mr. Horowitz to draft this proposal? 

Mr. Wright. Mr. Chairman, this was a decision to proceed by the 
administration and I support the decision. 

Mr. Brooks. All right. Are you now going to stay with this ver- 
sion or are you just going to tear this one up and start over? 

Mr. Wright. No, sir, we are going to be coming out with a re- 
vised regulation in several weeks. And we are going to go through 
a comment period all over again. 

Mr. Brooks. And you are going to go through a hearing all over 
again, if it isn't revised well. Why don't you just tear this one up 
and start over? 

Mr. Wright. Because if you tear this one up literally, what you 
are going to be doing is taking away the comments that people and 
organizations have been working on now for 2 or 3 weeks and we 
may as well take advantage of the work they have already done to 
come up with better definitions on the cost principles. That's all. 

Mr. Brooks. When you have finished reading this record and 
hearing these people who represent hundreds and hundreds of or- 
ganizations that believe the best thing you can do with this is to 
withdraw it, and then start over, ab initio, you will start anew. 

Mr. Wright. In effect that is what we are going to be doing when 
we come out with another set of revised regulations. 

Mr. Brooks. I recognize the gentleman from New York, Mr. 
Horton. 

Mr. Horton. Thank you, Mr. Chairman. 

I am concerned about this procedure also. I think it would be 
better to recognize that you have already received many excellent 
comments. It seems to me that you can certainly still use those 
comments, even though you don't proceed with the proposal you 
have made. Well, let me ask you, do you think that there has been 
a mistake made with the A- 122 proposal? 

Mr. Wright. Mr. Horton, I believe that the purpose and the 
intent to come up with clear guidelines was correct. I think that 
the approach and the package that was first put out needs to be 
thrown out and substantially revised. 

Mr. Horton. You made a Freudian slip. 



48 

Mr. Wright. No, I didn't. I just jumped in front of myself in the 
sentence. 

Mr. Horton. It should be thrown out. But it seems to me that 
you would be on much sounder ground if you went back and actu- 
ally had some hearings and meetings with people. You are in a 
very, very, difficult, complex legal thicket. When you start talking 
about defining lobbying activities, when you talk about advocacy, 
when you talk about limiting people's access to elected officials or 
administration officials, you are dealing in very fragile issues, and 
you may very well find yourself subject to constitutional questions 
that could be the result of lawsuits. With something so complicated 
as this, I think it would be very much desirable to have you go 
back to the drawing board and give some thought to specifically 
how you want to handle this without regard to what has happened 
in the past. As I said earlier in my testimony, I had constituents 
come in to see me about the proposal. They gave me a copy of it 
and I just couldn't believe it. They said that they would not even 
be able to talk to me next time when I had office hours out in my 
district. And I agreed with them. And I just think that even though 
you are trying to accomplish a goal, you won't accomplish it by 
rushing this proposal through. 

This press release says the extension will provide another 2 
months for comment on proposed revisions to Circular A-122, enti- 
tled "Cost Principles for Non-Profit Organizations," and then this 
extension will be accompanied by publication in 2 weeks of a re- 
vised proposal which will start a new 45-day comment period. I am 
a lawyer, and I have been up here for a long time, but if you said 
to me, Frank, I will give you 2 weeks to sit down and draw up 
these regulations, if I spent 24 hours a day with all the staff that I 
needed, I still wouldn't be able to come up with something that 
would run the gauntlet. 

I think you need more time and I think you need more consulta- 
tion. I think you need some consultation with the staff of this com- 
mittee to try to come up with something that can be acceptable. 
We are talking about trying to prevent Federal funds going for 
pure and unadulterated lobbying, and that is a long way from what 
you are trying to do here. As I said earlier, this proposal is nothing 
more than a gag rule. 

In your statement, you have given several examples of reim- 
bursement that shouldn't be allowed. The pages of the statement 
are not numbered, but about halfway through there is a bullet in 
the middle of the page, and next to it is a notation that in a recent 
investigation of Lockheed's lobbying campaign on a proposed $10 
billion procurement of the C-5 aircraft, GAO found that nearly 
half a million dollars in lobbying costs were included in the compa- 
ny's overhead expenses, 54 percent of which would be picked up by 
the Federal taxpayers. Well, I don't think that anybody would dis- 
agree with you that that is wrong, and something should be done 
about it. 

Now, there are procedures as you well know, that can be used to 
do something about that. There are Inspectors General in all of the 
agencies including the Department of Defense, which incidentally, 
I might say, we did get through in a bill last year, but there hasn't 
been a nomination by the President for the Department of Defense 



49 

IG, and I think 4 or 5 months have gone by. Is there any expecta : 
tion that shortly the administration will be sending up a name to 
fill the position of Inspector General for the Department of De- 
fense? 

Mr. Wright. Yes, sir. There is. 

Mr. Horton. Well, certainly that would come under the purview 
of the Inspector General's operation, and I would think that he 
could handle that without any regulations, couldn't he? 

Mr. Wright. Mr. Horton, again he can if you have clear defini- 
tions of what they are to audit or investigate and one of the big 
problems that we have got here, and the reason that A- 122 was 
put in place, is because we were requested to come up with clear 
definitions of cost principles, what is allowable, what is not allow- 
able. 

Mr. Horton. What is in the contract? 

Does the contract provide that any of those funds could be used 
for lobbying? Now there is a contract, isn't there? 

Mr. Bedell. Yes, sir. The contracts and the ones in question I am 
sure refer to what is known as part 15 of the Armed Services Pro- 
curement Regulations now known as the Defense Acquisition Regu- 
lations. They incorporate by reference essentially the same cost 
principles that we are talking about here. But it is very unclear ex- 
actly how the lobbying expenses should be charged. It is clear that 
they can't be direct charges to the Government, but it is unclear 
whether they can be indirect charges. Now, the Comptroller Gener- 
al has held in many decisions that it is inappropriate, unlawful for 
them to be charged indirectly to the Government. But both Lock- 
heed and Boeing have said that they disagreed with that and that 
they were appropriate charges and sought the 54 percent that the 
Government was going to 

Mr. Horton. Well, they ought to go to court on that one because 
I think if there is 54 percent reimbursement, and they are doing 
that kind of lobbying, and spending nearly half a million dollars on 
it, then I think there ought to be some court interpretation as to 
what were lobbying costs. Let the court determine that particular 
dispute. And that is really how you are going to have to decide 
these questions ultimately, anyway. 

But if you do feel that there is a valid reason for that type of 
clarification, then I think you ought to go back to the drawing 
boards and spend some time on it; don't do it in a hasty way that 
you contemplated. All you are saying now is that somebody in 2 
weeks is going to come out with another proposal, and I don t care 
who handles it, they are not going to be able to come up with the 
kind of proposal that is going to walk through this gauntlet. When 
I use that expression, I am not talking about a room full of people 
here that testify before this committee, but I am talking about 
legal complexities that involve the various constitutional questions 
of freedom of speech, the ability of people to communicate with 
their elected Representatives, and so forth. To walk through that 
maze is going to take some time, and I think you ought to spend 
more time than 2 weeks. I would hope that you could pull the 
whole thing off the drawing boards and say, look, we are going to 
start all over, as the chairman said, from the very beginning and 
come out with something that really attacks the problem. And I 



50 

think the more simple your solution, the better off you are going to 
be. 

Mr. Wright. In effect, Mr. Horton, that is what we are going to 
be doing. Now, we are going — let's talk about the process a little 
bit. We think that we will be able to make enough substantial 
changes to the proposal within a 2-week period of time so that we 
can get some good responses during the next month and a half. If 
we find that we cannot, or we get into serious legal problems or we 
have not made it simple enough, or there are still major disagree- 
ments about it, I have absolutely no problem with going ahead and 
extending that time period. We do not see coming out with any 
final revisions to the A-122 until around the summer, 4 or 5 
months from now. And if we need more time than that, we will 
take it. However, this is something — this is an area where we have 
been requested to come up with clearer definitions and I don't be- 
lieve that you would have the problems like you are talking about 
right now if we didn't provide loopholes by the fuzziness of the ex- 
isting regs and that is all we are trying to clarify. 

Mr. Horton. Well, you are going to have a problem with regard 
to enforcement, you are going to have a problem as to lobbying of 
elected officials, or advocacy with elected officials, you are going to 
have trouble in definitions, you are going to have trouble with con- 
stitutionality questions, you are going to have trouble as to wheth- 
er or not people can make contacts with the administration, et 
cetera. I can think of thousands of problems, and I don't need to 
spend the time now going through the different types that are 
going to arise as you try to walk through this thing. But I do think 
that you would be well advised to take more time. I have some 
question with the procedure that you are using, and I don't know 
why you have to do things that way. I really don't see a good sound 
reason for it. I have no problem with your coming up with some- 
thing by way of a Circular A-122 to try to establish cost principles 
for nonprofit organizations to accomplish the kind of goals that the 
chairman and I were both talking about and which I think you are 
trying to accomplish. But I just think that the procedure binds you, 
and that is going to be a very difficult thing for you in 2 weeks to 
come up with that kind of thing. You cannot go back with the 122 
that is before you and just make a couple little changes and then 
come back with it because that is not going to solve the problem. 

Mr. Brooks. Mr. Lantos, the gentleman from California. 

Mr. Lantos. Thank you, Mr. Chairman. 

Mr. Wright, you are here on a mission of damage control and 
you are doing a very good job of it. I want you to understand that 
since you had nothing to do with the drawing up of this circular, 
my questions are not personal but they are related to the process 
within OMB. 

One of the problems it seems to me that we have in this Govern- 
ment in the wake of Watergate, is to restore credibility to Govern- 
ment. I really wonder whether your opening statement does that 
and if you will allow me, I want to quote from your opening para- 
graph. 

You say "Our Federal Register notice of January 24 was just 
that: a solicitation of comments." But I don't think that is true. I 
think your Federal Register notice of January 24 was a solicitation 



51 

of comments on what OMB thought was the best OMB could come 
up with. And I truly wonder whether you would not be far better 
off if you would come before us and say we made a very serious 
mistake. We goofed. Or whoever did this is symbolic of the rigid 
ideological doctrinaire approach which we have come to see from 
this administration on so many issues totally unrelated to the real 
world. But I don't think you are going to get away, and you can 
sense this on the Republican side also, by trying to minimize what 
in fact happened here because while this problem is not nearly as 
severe as the problems we are probing at EPA, it is symptomatic of 
something far deeper than just the poorly drafted circular. When 
the ranking Republican on this committee, my distinguished 
friend, refers to this circular as outrageous, when responsible 
people refer to it as insidious and crazy, I don't think you can just 
dismiss it by saying that it will need a bit of revision. 

I think you should come here, or better yet, David Stockman 
should come here and say, "Mea culpa, mea maxima culpa," we 
made a very serious mistake, we know that we made a mistake, 
you know that we made a mistake, we want to go back to the draw- 
ing board, then start all over again. OMB can be accused of a lot of 
things, but it is not a stupid agency. David Stockman is not a 
stupid official of this Government. He is one of the brightest and 
the agency is filled with very bright people. What we are dealing 
with here, and I do want to come to your issue of process, what we 
are dealing with here is a quintessential manifestation of a doctri- 
naire idealogical approach to social problems totally divorced from 
reality. You did achieve something remarkable. You united for the 
first time the broadest spectrum of private and public organiza- 
tions in the history of this Nation against your proposal. 

Now, shouldn't this give you or someone in OMB pause? 
Shouldn't this be an occasion to explore perhaps a touch of humil- 
ity in your approaching social problems? I know you will withdraw 
this; whether technically you will withdraw it or not is really sec- 
ondary, you will start afresh. You will be ultracareful, you will 
come in with something that we will be able to live with. At least I 
hope you will. 

But I think we will have to do more than just redraft this circu- 
lar. I think the way the circular came out should have a profound 
lesson for the processes within this administration because I don't 
think that it is isolated from, for instance, the demand that a Ca- 
nadian Government film be designated as propaganda. That 
demand by another agency of this Government has made us the 
laughing stock of the democratic world and that brilliant circular 
will also be withdrawn. Because it also stems from a narrow, self- 
righteous doctrinaire ideological view of the world. You would 
score far better by me if you would admit this and not just pretend 
this is a complex issue and we have to do better. Because if it is a 
complex issue, you certainly ought to have solicited the advice and 
the counsel of Congress, of private business and nonprofit organiza- 
tions, a broad range of groups that have an interest in this and 
then come up with a far better product. I don't think you will get 
away with presenting something outrageous and then sort of slid- 
ing into a slight revision. I think this is analogous to say that a 
jobs bill is unneeded and then a few weeks later supporting a jobs 



52 

bill which is what this administration is doing. I think it is analo- 
gous to a zero-zero option in nuclear disarmament and then sliding 
away from it and recognizing that intermediate possibilities are 
rational and logical. I have only one simple question: 

Stepping out of your official role for a moment, how would you 
characterize this whole episode? 

Mr. Wright. Congressman, you want me to step out of my offi- 
cial role in the middle of a hearing? 

Mr. Lantos. Well, I think the chairman would let you do that. 

Well, don't step out of your official role — just give us an honest 
answer. Just give us an honest answer. 

How do you appraise the performance of OMB in this particular 
instance? On a scale of 10, where are you? 

Mr. Wright. I will give you a very short answer. I think that 
what you are doing is taking an attempt to provide better defini- 
tions to cost principles in an OMB circular which has been request- 
ed not only by the inspectors general, but by the agencies over the 
years, and you are expanding it into a philosophical difference be- 
tween the two political parties which I believe puts much more 
thought process, both devious 

Mr. Lantos. Not the two political parties, the ranking Republi- 
can was most critical of you. More critical than we Democrats have 
been. 

Mr. Wright. I don't believe from a philosophical standpoint he 
was. I would say from the process standpoint he was and I believe 
he was justified in doing so. Plus the fact I first brought out, if we 
did not feel that we made a mistake in the first issuance within the 
Federal Register, we would not say that we are going to come out 
and put out another revised proposal. 

Mr. Lantos. But it is self-evident that you made a mistake. I 
don't think that is a great admission. 

Mr. Wright. I agree with you and so therefore we didn't even 
pretend when we first came up that we were going to fight that 
issue. That was not a good package that first went out, and it went 
way too far. We have already admitted that but I believe for you to 
take it into a philosophical issue when we are really into a fairly 
boring process of trying to define better cost principles is really 
going beyond what was ever intended or is the fact. 

Mr. Lantos. Thank you, Mr. Chairman. 

Mr. Brooks. Mr. Waxman, a very distinguished member of this 
committee from California. 

Mr. Waxman. Thank you very much, Mr. Chairman. 

I want to thank you also, as other colleagues have done, for hold- 
ing this hearing. This hearing will hold up to public scrutiny the 
outrageous proposal that OMB has circulated and I am pleased to 
see they now reject their own original thoughts. But I am not so 
confident that in redoing this we are going to see a much better 
proposal for the very simple reason that OMB is stepping in an 
area that is very, very frightening. They are stepping on the Con- 
stitution of the United States and the ability of citizens of this 
country to express their point of view. I realize these two witnesses 
here today have handled themselves well in spite of the redeye 
flight, which Mr. Lantos and I are quite familiar with, coming from 
California. But you are really here to catch the flack. Mr. Stock- 



53 

man is not here, Mr. Horowitz is not here; they are not here to 
answer what their original purposes were. I suspect that Mr. 
Lantos' description of their original purpose is quite accurate, that 
the original purpose of motivating this action by OMB was based 
on a deep and narrow ideological point of view which is willing to 
throw out the Constitution of the United States to get at the en- 
emies of those people who believe as the self-righteous and the 
hard rightwing see the world. Their enemies are the people in the 
family planning clinics, the people working on social services pro- 
grams of one sort or another, and all the nonprofit corporations. 
Those are the people they see as their enemies. They are the ones 
who come in every year and tell Congressmen that there are chil- 
dren in this country who are dying, there are people who are starv- 
ing, that unless government acts, we are going to see tremendous 
amounts of injustice go on, and they just as soon not have Congress 
hear these stories from people who know about those things be- 
cause Congress then responds by passing laws, sometimes appropri- 
ating money, in trying to do something about these problems. 

I think that you can't come up with a good solution because I 
think the whole project is based on the wrong motives. I could go 
into questions with you about what political advocacy means and I 
just ask one question: Will you look at political advocacy and the 
costs to the Federal Government; are you looking at the amount 
that is deducted from taxes by corporations who pay lawyers to 
present their point of view in a way that is most favorable? Are 
you looking at the deductions that are taken by corporations which 
means taxes not paid into the Federal Government by advertising 
that is considered institutional as opposed to advocacy? Are you 
looking at the loss of money in that respect so that you can see 
whether the taxpayers that you express concern about in your 
statement are unhappy about losing these Federal dollars? Are 
their complaints in that regard answered? 

Mr. Wright. Let me answer in two ways, Mr. Waxman. 

First of all, when you say that the A- 122 revisions are primarily 
against 

Mr. Waxman. Now, I asked you a question. And my question is 
this: Are you going to look at revisions? The reason you have a cir- 
cular at all is because you say taxpayers are angry that their 
money is being used to lobby. Now, taxpayers are angry that their 
money is being used to lobby because their money and other peo- 
ple's tax moneys are not coming in, because they are being taken 
off as a deduction. I consider that an expenditure of the public 
funds, because those are funds that otherwise would be collected by 
the Federal Government by way of taxes. Are you looking at that 
issue at all? 

Mr. Wright. First of all, OMB does not look at tax issues 
through its circulars, No. 1. 

No. 2, I have to add this for the record, and that is that if we 
would have just gone for changes in Circular A- 122, then I would 
agree with your comments as to the organizations that would be 
affected by this, but we did not do that. We purposely extended it 
into procurements and contracts through DOD, GSA and NASA for 
exactly that reason. 



54 

And by the way, the objections that we heard were not from the 
nonprofits to begin with 

Mr. Waxman. Mr. Lantos pointed it out accurately, and we will 
see who is here next time. I suspect that the nonprofit people will 
still be here after your next proposal, because I think that is the 
ideological genesis of this whole effort by OMB. So you are not 
looking at the tax consequences and how taxpayers are losing dol- 
lars because of lobbying by corporations. That is clear. 

Now, let me ask you about another issue. OMB is concerned 
about the amount of money that is spent on regulation. This ad- 
ministration has told us that we don't want to have regulations 
that cost a lot of money. Have you done a fiscal impact study on 
what these proposed regulations would cost? 

Mr. Wright. No, we have not. 

Mr. Waxman. Do you plan to? 

Mr. Wright. We will be looking at that, yes, before we come out 
with any final regulations. 

Mr. Waxman. Doesn't this administration look at the costs of 
regulation, the impact costs both on the citizens that are required 
to comply with it, as well as the governmental costs that are going 
to be required to enforce it? 

Mr. Wright. As best we can, yes, sir. 

Mr. Waxman. You think you can make a good evaluation of that 
in a couple weeks? 

Mr. Wright. No, absoutely not. Within a couple of weeks, we are 
planning to come out with a revised proposal; go through a com- 
ment period again, take a look at the comments, and then spend 
several months, as much time as we need, before we come up with 
anything final. 

Mr. Waxman. It sounds to me like you are just throwing up trial 
balloons and seeing who shoots at them. Don't you do some study 
in advance to try to determine whether the proposals you put for- 
ward make sense or not? 

Mr. Wright. Yes, sir, we do. 

Mr. Waxman. But you are not going to have a financial impact 
study on these proposed regulations at all. You are going to wait to 
see what the comments are and then do some study later, presum- 
ably. 

Mr. Wright. There is no reason to do that within several weeks 
when you are going out to get additional comments, no, sir. 

Mr. Waxman. Well, you are going to put forward some proposed 
regulations. Before you put forward your proposals, don't you want 
to find out how much it is going to cost people to comply with those 
proposals? 

Mr. Wright. No, sir, because we are not going to have any idea 
what the regulation is going to be until we get the comments and 
we know what to measure the cost up against. 

Mr. Waxman. You have got a real chicken and egg problem over 
there, at OMB, don't you? 

If you are going to put forward a proposal with the administra- 
tion's idea of what to do, before you know what your idea is, 
shouldn't you study it and think it through and then see whether 
you missed out on some points? Obviously, with this proposal, you 
missed out on a lot of considerations. So I think, Mr. Chairman, I 



55 

would just conclude by saying that at this hearing, you Mr. Wright, 
are catching the flack, but I hope you will go back and tell Mr. 
Horowitz and Mr. Stockman and others in the administration that 
there is a very cool reception in the Congress to this whole idea. 
Furthermore, within your own determinations at OMB before you 
come up with these regulations, some of us would like to know that 
you have looked at not only the Constitution of the United States 
and how many individual civil liberties are going to be trampled 
upon, but whether the people are going to be paying for the cost of 
this in a way that will make no fiscal sense whatsoever; that you 
have looked at whether the regulation is going to be too burden- 
some for those who have to live with it, and that the cost to the 
Government to try to make all these fine distinctions is going to be 
so incredible that we are going to have fill OMB with a whole army 
of people just to go out and investigate and inspect and scrutinize 
whether anybody is saying anything to their Congressmen that 
may well be out of line with what OMB thinks. That is why we 
have a Constitution. These kinds of exercises shouldn't be done by 
bureaucrats. They shouldn't even be done by Congressmen. We pro- 
tect the public under the Constitution from the whims even of the 
majority of the country and that is why I think your whole project 
is doomed to failure and should be abandoned completely, except 
maybe in a very narrow way to enforce the laws that are on the 
books now that make it a crime to use Federal money to come in 
and lobby. 

Thank you, Mr. Chairman. 

Mr. Brooks. Thank you very much, Mr. Waxman. 

I might say that when things get dull, you might want to make 
an interesting study on lobbying. You might take a look at that 
Lockheed operation when Mr. Weinberger, Mr. Carlucci and Lock- 
heed worked very carefully at lobbying Congress. They were lobby- 
ing the legislative branch fully, not the executive. They had print- 
outs — and I have a copy — of all the Members of Congress and after 
they finished lobbying they gave grades to individual Members. I 
don't know what kind of grade I got. At any rate, they had a list of 
who was going to see various Members, for example. Do you know 
who was going to see Mr. Addabbo on the printout? Carlucci, one 
on one. 

Bill Alexander? General O'Malley was going to see him. Brooks, 
I don't see Brooks on here. Let me find it; let me see if they have 
got Brooks on here. 

Brooks, Jack Brooks — Marine or Army followup. Letter sent May 
24. Member contact, Bernard. He's a Member of Congress from 
Georgia, very nice fellow, and a subcommittee chairman. I think 
that is important. That is really impressive. Horton — let me tell 
you about Horton. 

Frank Horton, Member contact McDonald. He's from Georgia. 
He is independent. The DOD and Air Force will see Mr. Horton, 
RKC. I don't think we ever figured out who RKC was? He is some- 
body who sees lots of people, though, he is named a lot of times. 

Isn't that interesting? That's the kind of thing you might look 
into — whether it is appropriate for the Defense Department to use 
defense contractor expenditures and printouts and have a little 
headquarters meeting every morning to regroup and update their 



56 

information on what the Members are doing. It was a fascinating 
little exercise. You'd have thought they were fighting a war, but 
that is what they did and here is the printout. You may have a 
copy of it, if you would like. And if you want to deduct all those 
costs from Lockheed as lobbying, go ahead. That would be interest- 
ing. Carlucci won't be calling any more for the Defense Depart- 
ment, but I guess somebody else will. They spent lots of money and 
graded Congress on how they did. I think that is fascinating. I 
would just love to hear their evaluation. If OMB wants to grade us, 
you all can run your little printout, too. We'll get a printout on 
OMB on the record too, because everybody will get to vote on this 
proposed regulation if you keep bringing it back like it is. 

Well, we thank you and call on Mr. dinger, a very distinguished 
member of this committee and a former bureaucrat. I wish he had 
been down there at OMB as he would have written a much better 
regulation. Mr. dinger. 

Mr. Clinger. Thank you for those kind words, Mr. Chairman. 
Having been a bureaucrat, I am not sure that that is the case be- 
cause I think — Joe, I think you get the sense from questioning the 
committee that nobody is very happy with this redraft of A- 122 
and for the record, do I understand you to say that the version that 
we had before us is or has been withdrawn? 

Mr. Wright. The process, Mr. Clinger, is we will be coming out 
with a substantially revised version in 2 weeks. 

Mr. Clinger. In 2 weeks time. 

Mr. Wright. In effect, it will replace the one that is existing 
right now, so yes, from a practical sense it will be withdrawn. 

Mr. Clinger. There has been some allusion here that you were 
contemplating changes and some of the questions indicated that 
these might only be minor cosmetic revisions. Is that the way you 
would characterize how you propose to redraft this? 

Mr. Wright. No, sir. .They are going to be fairly substantial 
changes. 

Mr. Clinger. There has also been suggestion here, and I think 
this is critical to the whole discussion, that there is some hidden 
agenda in attempting this exercise at all, that there are some ulte- 
rior motives, that there is ah attempt here to put a gag rule on 
particular groups, whether in the humanitarian area or whatever. 
You have characterized it primarily as designed to implement cer- 
tain cost principles. What is your response to the charge that this 
is a hidden effort to place a gag rule on particular groups within 
the country? 

Mr. Wright. Mr. Clinger, I don't- look upon this as placing any 
gag rule at all on groups, or the first amendment of the Constitu- 
tion. I look upon this as an attempt to make sure that the Federal 
Government does not pay for lobbying costs it considers inappropri- 
ate. If you want to call it lobbying — which I guess gets into the 
entire area of speech as well as writing — they can do anything they 
want to, but we do not want to pay for it out of taxpayers' money 
when it is considered inappropriate by the executive, and the legis- 
lative branches. 

It is not a question of whether or not they speak. It is a question 
of what activities does the Federal Government pay for out of tax- 
payers' funds. That's the question. Now, I have heard all of this, 



57 

you know, today, and to be honest I was a little surprised that this 
would be criticized from a philosophical point of view. But if it had 
been intended to be a gag rule, then we would not have extended it 
to the contracts and procurements through DOD, GSA and NASA. 
We purposely extended the same cost principles for exactly that 
purpose so that it would be even-handed across the board, across 
the spectrum. That is exactly why you found groups from both 
sides coming in with equal concern. 

Mr. Clinger. So you don't see this as a liberal-conservative, or 
right-left issue? You are saying that it treats everybody badly. 

Mr. Wright. That is not the purpose of it. 

Mr. Clinger. What about suggesting that there are laws on the 
books at the present time that do deal with this issue and that if 
we just made a more assiduous effort to enforce the existing law, 
we could get at the root of the problem. You obviously feel that 
there is a need to go beyond that to some extent. 

Mr. Wright. No, no. I agree with your statement entirely. There 
are laws out there to enforce, but I believe that the additional 
effort to enforce them requires a better definition of what is im- 
proper and what is proper. That's all. I don't believe we need any 
additional laws. 

Mr. Clinger. OK, thank you. 

Mr. Brooks. Thank you very much, Mr. Clinger, and thank you 
Mr. Wright. Thank you Mr. Bedell, you were gracious to have come 
down. 

Our next witness is Charles A. Bowsher, the Comptroller General 
of the United States. He is a graduate of the University of Illinois, 
received an MBA degree from the University of Chicago in 1956, 
and was associated with Arthur Andersen in Chicago after gradua- 
tion. 

In 1967 he was Assistant Secretary of the Navy for Financial 
Management, appointed by President Johnson, and continued there 
until 1971. He went back to Arthur Andersen as a partner in the 
firm and later directed their Government service industry program 
here in Washington. He is accompanied today by Milton J. Socolar, 
Special Assistant to the Comptroller General, a former Acting 
Comptroller General. Mr. Bowsher, it is a pleasure to welcome you 
here today joined by your distinguished and able assistant, Mr. So- 
colar. 

STATEMENT OF CHARLES A. BOWSHER, COMPTROLLER GENER- 
AL OF THE UNITED STATES, ACCOMPANIED BY MILTON J. SO- 
COLAR, SPECIAL ASSISTANT TO THE COMPTROLLER GENERAL 

Mr. Bowsher. Thank you, Mr. Chairman. 

I have a short statement, and I will read just the front part and 
be happy to take any questions. 

We are here today to discuss the Government-wide regulations 
recently proposed by the administration to control political advoca- 
cy or lobbying with appropriated funds by Government contractors 
and federally funded nonprofit organizations. 

The Office of Management and Budget, the Department of De- 
fense, the General Services Administration, and the National Aero- 
nautics and Space Administration have simultaneously proposed 



58 

the adoption of identical regulations that prohibit the reimburse- 
ment of political advocacy expenses charged to Federal grants or 
contracts. 

These proposed regulations are in part the result of a series of 
recommendations contained in GAO reports and decisions that the 
administration establish uniform Government-wide regulations pro- 
hibiting Government contractors and federally funded nonprofit or- 
ganizations from expending appropriated funds for lobbying activi- 
ties. 

While we endorse the concept of uniform cost principle regula- 
tions governing political advocacy activities, we have certain reser- 
vations about the proposed regulations. 

The Federal Government pursues its aim and promotes its pur- 
poses through payments of about $100 billion annually to contrac- 
tors and grantees. Every recipient of a Government contract or 
grant is unquestionably free to exercise the right to political ex- 
pression free of restraint. It is equally clear, however, that the cost 
associated with political advocacy should not be financed with tax- 
payer funds through charges to Federal contracts or grants. The 
proposed regulations seek to assure that Federal funds do not fi- 
nance political advocacy. 

Now, we have two primary concerns with the proposed regula- 
tions which we have discussed in detail with OMB officials in the 
last few days. First we have had serious problems with the way the 
regulations treat allocation of costs between unallowable and al- 
lowable activities. 

Our second concern relates to the scope of prohibitive activities 
included within the definitition of political advocacy. We under- 
stand that OMB is prepared to make significant revisions to its ini- 
tially proposed approach — changes which will go far toward ame- 
liorating their far-reaching effect. Nevertheless, even with OMB's 
suggested revisions, there will remain an essential feature that 
troubles us. 

Under the proposed cost principles, and as they might be revised, 
costs representing political advocacy are not merely disallowed but 
may cause otherwise legitimate costs also to be disallowed. The full 
salary costs of individuals are unallowable if any part of their work 
constitutes political advocacy or if their organization has required 
or induced them to contribute to any organization engaging in po- 
litical advocacy during nonworking hours. The allowable portions 
of other expenses are also unallowable if any portion of the items 
involved are used for political advocacy. Under the revisions OMB 
is apparently prepared to make, some threshold amounts of politi- 
cal advocacy will control but the basic concept will remain. 

In essence, grantees and contractors will be penalized for having 
individuals engaged in political advocacy doing any work otherwise 
properly chargeable to a grant or contract. We have serious reser- 
vations concerning the legal enforceability of these penalty provi- 
sions, as well as their desirability from a policy standpoint. Con- 
tractual provisions requiring forfeiture of reimbursement for other- 
wise allowable costs because of actions unrelated to contract or 
grant purposes generally will not be enforced. Under the OMB pro- 
posal it is clear that there is no reasonable relationship between 
the proscribed activities and the requirement for forfeiture where 



59 

the Government is not being charged in any way for those activi- 
ties. We do not understand why engaging in political advocacy on 
one's own time is any different from engaging in any other non- 
reimbursable activity on one's own time. The key requirement is 
only that the nonallowable activity be separated from public fi- 
nancing. 

Since the penalty can be so great, it could have a chilling effect 
on grantees and contractors in communicating with their program 
agencies concerning legitimate business. It would also make it nec- 
essary for grantees and contractors to add additional staff and 
equipment to replace staff and equipment that has been used previ- 
ously for both permissible and impermissible activities on a cost al- 
location basis. This would increase the Government's cost for the 
same goods and services. Also, the requirement for small grantee 
organizations to physically separate permissible and impermissible 
activities could place such a strain on their finances as to threaten 
their continued viability. 

We are also concerned with the scope of the definition of political 
advocacy, although here too, OMB indicates an intent to make sub- 
stantial changes. 

Mr. Chairman, I know you have a time problem today and I will 
put aside the rest of the statement and have it inserted in the 
record. I would only like to say that we are more than willing to 
work with the Congress, this committee and OMB to work out 
some changes in the regulations that could do what we think is 
necessary and that's to bring some uniformity to this whole area 
and some definition as to what is permissible and what is not per- 
missible. We do not think that we have to go as far as OMB did. 

[Mr. Bowsher's prepared statement follows:] 



20-644 0-83 5 



60 



UNITED STATES GENERAL ACCOUNTING OFFICE 

FOR RELEASE ON DELIVERY 
EXPECTED AT 9:30 A.M. EST 
TUESDAY, MARCH 1, 1983 

STATEMENT OF 

CHARLES A. BOWSHER 

COMPTROLLER GENERAL 

OF THE UNITED STATES 

BEFORE THE 

SUBCOMMITTEE ON LEGISLATION AND NATIONAL SECURITY 

COMMITTEE ON GOVERNMENT OPERATIONS 

HOUSE OF REPRESENTATIVES 

Mr. Chairman and Members of the Subcommittee: 

I am here today to discuss the Government-wide regula- 
tions recently proposed by the Administration to control 
political advocacy or lobbying with appropriated funds by 
government contractors and Federally funded non-profit orga- 
nizations. The Office of Management and Budget (OMB), 
Department of Defense (DOD), General Services Administration 
(GSA) and the National Aeronautics and Space Administration 
(NASA) have simultaneously proposed the adoption of identi- 
cal regulations that prohibit the reimbursement of political 
advocacy expenses charged to Federal grants or contracts. 



61 



These proposed regulations are in part the result of a 
series of recommendations contained in GAO reports and deci- 
sions that the Administration establish uniform Government- 
wide regulations prohibiting Government contractors and 
Federally funded non-profit organizations from expending 
appropriated funds for lobbying activities. While we 
endorse the concept of uniform cost principle regulations 
governing political advocacy activities, we have certain 
reservations about the proposed regulations. 

The Federal Government pursues its aims and promotes 
its purposes through payments of about one hundred billion 
dollars annually to contractors and grantees. Every recip- 
ient of a government contract or grant is unquestionably 
free to exercise the right to political expression free of 
restraint. It is equally clear, however, that the costs 
associated with political advocacy should not be financed 
with taxpaper funds through charges to Federal contracts or 
grants. The proposed regulations seek to assure that 
Federal funds do not finance political advocacy. 

We have two primary concerns with the proposed 
regulations which we have discussed in detail with OMB 
officials. First, we have serious problems with the way the 
regulations treat allocation of costs between unallowable 



62 



and allowable activities. Our second concern relates to the 
scope of prohibited activities included within the defini- 
tion of political advocacy. We understand that OMB is 
prepared to make significant revisions to its initially pro- 
posed approach — changes which will go far toward ameliora- 
ting their far reaching effect. Nevertheless, even with 
OMB ' s suggested revisions, there will remain an essential 
feature that troubles us. 

Under the proposed cost principles, and as they might 
be revised, costs representing political advocacy are not 
merely disallowed but may cause otherwise legitimate costs 
also to be disallowed. The full salary costs of individuals 
are unallowable if any part of their work consistitutes 
political advocacy or if their organization has required or 
induced them to contribute to any organization engaging in 
political advocacy during nonworking hours. The allowable 
portions of other expenses are also unallowable if any por- 
tion of the items involved are used for political advocacy. 
Under the revisions OMB is apparently prepared to make, some 
threshhold amounts of political advocacy will control but 
the basis concept will remain. 

In essence grantees and contractors will be penalized 
for having individuals engaged in political advocacy doing 
any work otherwise properly chargeable to a grant or 
contract. We have serious reservations concerning the legal 



63 



enforceability of these penalty provisions as well as their 
desirability from a policy standpoint. Contractual provi- 
sions requiring forfeiture of reimbursement for otherwise 
allowable costs because of actions unrelated to contract or 
grant purposes generally will not be enforced. Under the 
OMB proposal it is clear that there is no reasonable rela- 
tionship between the proscribed activities and the require- 
ment for forfeiture where the Government is not being 
charged in any way for those activities. We don't under- 
stand why engaging in political advocacy on one's own time 
is any different from engaging in any other non-reimbursable 
activity on one's own time. The key requirement is only 
that the non-allowable activity be separated from public 
financing. 

Since the penalty can be so great, it could have a 
"chilling effect" on grantees and contractors in communicat- 
ing with their program agencies concerning legitimate busi- 
ness. It would also make it necessary for grantees and 
contractors to add additional staff and equipment to replace 
staff and equipment that had been used previously for both 
permissible and impermissible activities on a cost alloca- 
tion basis. This could increase the Government's cost for 
the same goods and services. Also, the requirement for 
small grantee organizations to physically separate permis- 
sible and impermissible activities could place such a strain 
on their finances as to threaten their continued viability. 



64 



We are also concerned with the scope of the definition 
of political advocacy, although here too, OMB indicates an 
intent to make substantial changes. OMB initially defined 
political advocacy as including attempts to influence 
Federal, State, and local legislative outcomes through con- 
tributions, endorsements, or publicity, and attempts to 
influence governmental decisions through communication with 
any participant in the decision-making process or the gen- 
eral public. The term Governmental decisions is in turn 
defined as including legislation on the Federal, State and 
local levels, administrative decisions, and formal informal 
adjudications. 

We are uneasy about including "attempts to influence 
the administrative decision-making process" within the scope 
of unallowable political advocacy costs in the absence of a 
statute or other evidence of Congressional intent to go that 
far. While we recognize that lobbying of executive branch 
personnel with Federal funds by contractors or grantees is a 
legitimate area of concern, we foresee major difficulties in 
distinguishing between contacts between contractors or gran- 
tees and agencies which are permissible — indeed necessary — 
to the pursuit of the contract or grant objective and those 
contacts which constitute impermissible political advocacy. 



65 



As pointed out, OMB officials have stated that the 
proposed cost principles represent only a "first draft" 
to be modified in a great many respects before they 
become final. We think the issue covered by the proposed 
regulations is an important one which should be subject 
to full debate by all interested parties. We agree with 
the underlying premise that taxpayers should not be 
forced to support causes with which they might be in sub- 
stantial disagreement. Indeed, we subscribe to the idea 
that taxpayer funds should be devoted to governmental 
purposes which do not include, except in rare circum- 
stances, the financing of political advocacy. We think 
that any regulations go too far, however, when they 
require a Federal contractor or grantee to forfeit reim- 
bursement for legitimately incurred expenses merely 
because the contractor or grantee has engaged in perfect- 
ly proper political advocacy with non-Federal funds. 

It is evident that revision of proposed cost princi- 
ples which deal with unallowable costs is required and 
that changes in the scope of the definition of political 
advocacy are also needed. We support the willingness of 
the OMB officials to deal with the concerns which have 
been raised, and we are prepared to work with OMB in 
developing revised cost principles which will protect 
both the taxpayer's dollar and the Federal grantee or 
contractor's right to compensation for legitimate work 
performed on behalf of the United States. 



66 

Mr. Brooks. Thank you, General. Was GAO asked for its recom- 
mendations before the OMB issued the proposed changes in cost 
principles? 

Mr. Bowsher. No, we were not. 

Mr. Brooks. Has GAO reviewed the inappropriate use of Federal 
funds for lobbying by grantees and contractors? 

Mr. Bowsher. Yes, we have. 

Mr. Brooks. Does GAO's work in this area provide sufficient 
basis to justify the drastic change in policy that has been proposed? 

Mr. Bowsher. No, it does not. We have been asked to look into 
various incidents of possible improper use of Government funds for 
lobbying and we have cited some incidents where we thought the 
funds had been improperly used. We have never seen any volume 
of such improper use that we would propose this kind of change. 

Mr. Brooks. General, last Friday afternoon OMB issued a press 
release suggesting that the purpose of their draft proposal was to 
carry out a recommendation made by the Comptroller General. 
That is you. Specifically, OMB quoted the following language from 
a GAO report on the use of funds under title X of the Public 
Health Service Act. They said: 

Clear Federal guidance is needed both to insure that title X program funds are 
not used for lobbying and to preclude unnecessary controversy over whether grant- 
ees are violating Federal restrictions. The move to revise and make more specific 
the cost principles applicable to all Federal grantees is the appropriate mechanism 
to achieve these ends. 

Did you ever intend that recommendation to result in the action 
that OMB has taken? 

Mr. Bowsher. No, we didn't, Mr. Chairman. What we did intend 
is what some of the members of your committee and yourself have 
said today to try to get some consistency in the regulations in the 
executive branch — as we had cited in that report the difference be- 
tween the OMB directions and HHS's regulations. But what we 
were really talking about was cleaning up some cost allocation reg- 
ulations, you might say, to make it clear and that is all we were 
talking about, really. 

Mr. Brooks. What steps other than those that have been pro- 
posed by the administration could be taken to eliminate abuses of 
Federal funds to pay for lobbying expenses? 

Mr. Bowsher. Well, I think that the one we just talked about, 
cleaning up and trying to get some consistency in what is an allow- 
able cost and what isn't, would be good. We also, as you know in 
that Lockheed situation, ran into a situation that is really not cov- 
ered by these regulations and that is where the executive branch is 
working with the private sector to carry on a massive lobbying ac- 
tivity. That would have to probably be cleared up by legislation. 

Mr. Brooks. One last question. Lobbying is not listed in current 
OMB guidelines as an unallowable expense. If lobbying were spe- 
cifically listed as unallowable, would auditors be able to determine 
whether Federal funds are being diverted from legitimate activities 
to political advocacy? 

Mr. Bowsher. I think auditors can make those kinds of determi- 
nations. Sometimes it is imprecise and sometimes the cost account- 
ing systems of the various organizations are not perfect but I know 
that is what some of the people at OMB were trying to do with 



67 

these regulations, was eliminate the need for some basic cost ac- 
counting and for the need for auditors to check it out. But by going 
the route they did, as you can see here today, they have created 
greater problems and I really think the cost accounting can be 
there and the auditors can check it out as they have traditionally 
done. They just need a little more clarification in the guidelines. 

Mr. Brooks. Mr. Horton? 

Mr. Horton. Thank you, Mr. Chairman. 

It is nice to have you back with us again. We appreciate your tes- 
timony. Is it necessary to have regulations such as the proposal re- 
vision to A- 122? 

Mr. Bowsher. I think some guidelines like A-122 are desirable, 
yes, I do. 

Mr. Horton. In a broad way how would you sketch out what is 
needed? 

Mr. Bowsher. Well, I think just in a broad way is some clarifica- 
tion here as to what's allowable and what isn't. As we pointed out 
in our title X report some of the funds were sent on to induce pay- 
ment, we might say, to associations; those kinds of things could be 
clarified. I think the nonprofits and the corporations in this coun- 
try would tend to abide by these regulations and they could be 
checked out by periodic audit. It is a very doable situation and by 
and large if the regulations were revised in a commonsense and 
practical manner, I think the organizations would abide by it. 

Mr. Horton. I certainly agree with you that cost of political ad- 
vocacy should not be financed with taxpayers' funds through 
charges to Federal contracts or grants. Do you have any idea, 
maybe just a sort of a rough estimate, of how much is charged ac- 
tually? 

Mr. Bowsher. No, we have never done a study that we could give 
you a figure. We have looked at individual situations both on some 
of our work that we self-initiate and some of the work that the 
Congress has asked us to look at and we have reported those situa- 
tions, but we have never done a complete study. 

Mr. Horton. Is a complete study to find that out feasible? 

Mr. Socolar. I think it would be very difficult to do a study on 
the basis of which one could project throughout the whole Govern- 
ment. 

Mr. Horton. How widespread or how deep a problem is it? 

Mr. Bowsher. We do not think it is a deep or widespread prob- 
lem. In other words, we have found incidents and we have reported 
those, and as a result asked for some clarification, but we have 
never found huge sums of money involved that we could report to 
the Congress. 

Mr. Horton. In addition to your kind of studies, do you think 
also that the inspectors general efforts could be helpful in this re- 
spect? 

Mr. Bowsher. Yes, I do. 

Mr. Horton. How bad is the problem at Defense, compared with 
the problem with nonprofit grantees and contractors? 

Mr. Bowsher. Well, the Defense issue is somewhat different and 
is not really covered by the changes in this, although these would 
have an effect on the Washington offices of the major aerospace 
contractors. But what we ran into in the Lockheed situation, which 



68 

you people raised here this morning, was the executive branch 
working with the private sector putting forth this major lobbying 
effort as you point out, costing somewhere around $500,000, and 
those are the efforts that are problems as we pointed out when we 
testified on the Lockheed report that we issued. 

Now, these regulations really are only changing the ball game 
for the private sector. They are not touching at all what the execu- 
tive branch does in relation to the private sector on a situation like 
Lockheed which is, I think, something that should eventually be 
looked at both by the executive 

Mr. Horton. Is there a need to look at that? 

Mr. Bowsher. Yes there is, as we previously testified. 

Mr. Horton. I think you probably were here when Mr. Wright 
was testifying about other circulars. I forget the numbers, I think 
one was 21 and another one related to the State and local govern- 
ments. Do those circulars get into the same type of problem or the 
same type of area that Circular A- 122 attempted to get into? Are 
you familiar with that? 

Mr. Socolar. Circular 87 gets into it somewhat in connection 
with prohibiting contributions by State and local governments to 
organizations that do a substantial amount of lobbying. There is 
nothing in A-122 at the present time that deals with the subject. If 
I might comment, our particular concern about the need for regula- 
tions in this area stems from the fact that there are several gener- 
al statutes on the books today and that we are often called upon on 
a complaint basis to examine particular situations. Because the 
laws are so general and because there aren't specific regulations 
delineating what kinds of activities are reimbursable under those 
laws, we have a rather difficult time drawing the line between per- 
missible and impermissible types of activities. We think it would be 
helpful not only in terms of going in after the fact to determine 
what happened, but for the guidance of the particular grantees, 
contractors, to know beforehand what kinds of costs they should 
charge to their contracts and grants and what kinds they 
shouldn't. With that guidance there should not be too great a prob- 
lem in terms of enforcement. 

Mr. Horton. I assume from what you say that it is better to pro- 
ceed administratively or through regulation rather than statute. 

Mr. Bowsher. We think that is true, Congressman, on this issue 
of allowable costs and unallowable costs. We do think that on Lock- 
heed, that you would have to, as Milt has pointed out, go back and 
look at some of the statutes which tend to conflict. 

Mr. Horton. Thank you, Mr. Chairman. 

Mr. Brooks. Thank you, Mr. Horton. I recognize the gentleman, 
Mr. Clinger. 

Mr. Clinger. Thank you very much, Mr. Chairman. 

Mr. Bowsher, on page 6 of your statement you suggest that there 
may be some rare circumstances where it might be appropriate to 
use tax dollars to pay for political advocacy. Could you elaborate on 
that? 

Mr. Bowsher. Yes. We only put that in because we didn't feel we 
could exclude everything and we think it is very rare. One case 
might be a legal defense corporation where they have a case where 
in defending or representing their client they would have to be ad- 



69 

vocating some position, feeling they would have to come down and 
talk to somebody here in either the executive branch or in the leg- 
islative branch and it would be appropriate and probably should 
not be excluded. But we really think those are very rare circum- 
stances. 

Mr. Clinger. It is very difficult to define, it would seem to 
me 

Mr. Bowsher. Yes, sir. 

Mr. Clinger. How do you write a regulation that could take into 
account those gray areas? 

Mr. Socolar. In point of fact, the legislation covering the Legal 
Services Corporation specifically provides for that kind of political 
advocacy. So long as there is a client in whose behalf that kind of 
activity is required, the act makes very clear that that would be all 
right. 

Mr. Clinger. I think we all agree that the definition that is con- 
tained in the withdrawn A- 122 with regard to political advocacy is 
not a good one and that there need to be some fairly dramatic 
changes in that definition. 

Have you given any thought to what changes might be made 
that would make political advocacy a more workable concept? 

Mr. Bowsher. Well, what we would like to do, Mr. Congressman, 
is work with the people at OMB and with your committee, and 
anyone else in the Congress on that rather than give you a quick 
answer here today. We would like to work with them on that in 
the days and weeks ahead. 

Mr. Clinger. Well, perhaps a more specific question. OMB has 
hinted that it might be considering new language that exempts 
standard marketing activities from the definition of political advo- 
cacy. 

Would you have any views on that proposed change? 

Mr. Socolar. I think that the posture that we would start from 
is that any definition of political advocacy would have to assure 
that legitimate activities, legitimate making of information availa- 
ble would not be cut out by whatever that definition might be. 
Under the laws as they are on the books now, for example, because 
they are so general we have taken the view that one really has to 
step into an area of egregious conduct before we would, as a matter 
of law, conclude that those statutes have been violated. I think the 
same kind of care would need to be taken with regard to any defi- 
nition of political advocacy that would be put forward in a regula- 
tion. Our main objection, if you will, to the issuance and to the con- 
cept being propounded by OMB is on this issue of nonallocatability 
of permissible and impermissible costs — that once an individual, 
for example, engages in political advocacy, no part of his salary 
may be charged to a grant or a contract irrespective of whatever 
his contribution to that grant or contract might be. We think that 
is an impermissible penalty. 

Mr. Clinger. I think clearly the most egregious provision of this 
regulation — I think the most offensive to the most number of 
people and with regard to that concept — is that of disallowing the 
full salary cost of any part of an individual's activity engaged in 
political advocacy. How would you see that kind of principle apply- 



70 

ing to equipment, for example? If any portion of Federal grant 
money is used to purchase a telephone or a Xerox machine 

Mr. Bowsher. We would have the same problem. 

Mr. Clinger. That equipment be used for political activities? 

Mr. Bowsher. Yes. In other words, we just don't think you 
should wipe it all out at least on that one action 

Mr. Clinger. Yes. You get into very, very difficult areas. You 
buy a bus to transport people and they are transported to some po- 
litical event, do you disallow the whole cost? That sort of thing. 

OK. Well, I think that clarifies my question. Thank you, Mr. 
Chairman. 

Mr. Brooks. Thank you both very much. I appreciate your 
coming down, General. 

Mr. Bowsher. Thank you very much. 

Mr. Brooks. This morning we have from the Government Oper- 
ations Committee a colleague, Congressman Barney Frank, from 
the Fourth District of Massachusetts. He is serving his second term 
in Congress after a distinguished career in the Massachusetts Leg- 
islature. He has a BA and a JD from Harvard University, has been 
a teaching fellow in government at Harvard, and was a graduate 
student in political science. 

At the beginning of this Congress, he was elected chairman of 
our Manpower and Housing Subcommittee and we are expecting to 
see the vigorous and diligent work from him as a subcommittee 
chairman that has characterized his entire political career. 

STATEMENT OF HON. BARNEY FRANK, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF MASSACHUSETTS 

Mr. Frank. Thank you Mr. Chairman. I will be very brief and I 
appreciate the opportunity because there are a number of people 
here who can document what is happening. I want to express my 
appreciation to you for having this hearing. Obviously there has 
been a great deal of unhappiness about this proposal and it is very 
important that you have provided this channel for it to be voiced. 

What bothers me in addition to the specifics about this is the 
basic thrust of it. In other words, I think it is a bad idea being 
badly executed. Improving the execution will not cure the fact that 
it is a bad idea. 

What we fundamentally have are people in the executive branch 
who want the American people to leave them alone. I was struck 
on reading Mr. Wright's testimony that apparently one of his modi- 
fications is going to be that it will be all right for people to talk to 
the executive branch but not to talk to Congress because they don't 
want interference with what they are planning to do. 

I am offended by the whole notion that seems to me to be moti- 
vating this proposal that there is something improper about citi- 
zens speaking out about public policy and I think that really is the 
motivation. I think we have people in the executive branch who 
want to make fundamental changes and they don't want to be 
bothered by a lot of people who are going to tell us what the effects 
of those changes are. I do not understand how it could have oc- 
curred to them that it was appropriate for the Federal Government 



71 

to say to the American people you may not speak out on these 
issues. 

It is particularly ironic that an administration which has 
stressed, correctly, that tax dollars are not the property of the Fed- 
eral Government but are in fact something which belongs to the 
people are now acting as if by providing funds for various legally 
sanctioned activities, they are doing people an enormous favor for 
which the people must pay by shutting up. 

We are not talking about a Federal Government dipping into the 
pockets of its own appointees and going out and distributing lar- 
gess to which people should be quietly grateful. We are talking 
about legally sanctioned activities whereby the Congress has told 
the executive branch various activities should be funded. To say 
that the recipients of those funds who are carrying out sanctioned 
public purposes are somehow behaving improperly if they talk 
about how they could be better used, seems to me to be bizarre. 

I would also add that if they were going to enforce this, I would 
have some questions in particular about an inconsistency. It does 
seem to me that John was right when he said that Government 
ought to have laws of a democracy which apply not just to the pri- 
vate citizens, but to the people in Government themselves. 

Now, I don't know exactly who pays what at the White House. I 
do know there are people at the White House, Mr. Nofziger and 
now Mr. Rollins, whose job does not seem to me to be by any 
stretch of the imagination governmental. They are over there in 
the White House and maybe they are paying for those phones pri- 
vately and the Xerox machines privately, but it was my undertand- 
ing that they have been in the White House not just in this admin- 
istration, but in prior administrations, people whose job it is to get 
political. 

Now, I have no particular objection to the fact that Mr. Rollins 
spent a certain part of his time on the Government payroll figuring 
out how to defeat me for reelection; if I were he, I would have done 
the same thing. What I object to is his administration deciding that 
while it was perfectly legitimate for him and Mr. Nofziger and 
their staffs to be paid wholly out of Government funds on Govern- 
ment property over there in the Executive Office Building, to be 
engaged in political activity, but that it is somehow improper for 
citizens who are going about their legal business to do the same 
thing. 

So I would hope that this circular is not only withdrawn, but is 
sent back to whatever nook and cranny it came from and I think 
what we have, Mr. Chairman, is very simply an effort by this ad- 
ministration to appease some of its particular rightwing constitu- 
ents by defunding the left. The fact that they have to get Lockheed, 
Boeing and a few others, I think, is only a minor inconvenience be- 
cause they think they can figure out some ways around it. It is not 
an appropriate response for the Federal Government to act as if it 
is the executive branch's money, that the recipients ought to be 
seen and not heard. The whole thrust of this is to interfere, it 
seems to me, with the kind of vigorous debate that I would have 
thought we would have been proud of in a democracy. 

I congratulate you for holding a hearing and I am glad that they 
have withdrawn the first attempt and I hope they will do the sensi- 



72 

ble thing and stop wasting all of our time and just let us all go 
about our business. 

The final thing I would say is that there is a disturbing trend 
here that we see because people admit there are rules and regula- 
tions on the books. This is not simply an effort to make them uni- 
form. What they are saying is it is too hard to enforce the specific 
rules so let's punish everybody. We have seen too much of that as a 
governmental response. It is easy to say there have been problems 
in the student loan program; let's cut off whole groups of people. 
There have been problems in this program or that program, let's 
cut off whole groups of people. Instead of doing what they ought to 
be doing, which is enforcing the existing rules on the books, they 
say that is too hard, let's just cut off everybody. That kind of mass 
punishment has bothered me since I was in the second grade and 
the teacher punished the whole class because one kid yelled when 
she wasn't looking. I don't think it is any more appropriate now 
and I think from the standpoint of the first amendment and a re- 
spect for the democratic process, they ought to withdraw the whole 
thing. 

Thank you, Mr. Chairman. 

Mr. Brooks. Thank you very much, Mr. Frank. 

Our next witness is Brian O'Connell, president of the Independ- 
ent Sector. Previously, he served as president of the National Coun- 
cil on Philanthropy and executive director of the Coalition of Na- 
tional Voluntary Organizations. For 12 years Mr. O'Connell was 
national director of the Mental Health Association. Prior to that he 
spent 12 years with the American Heart Association. 

He is a graduate of Tufts, did his graduate work at the Maxwell 
School of Citizenship and Public Administration at Syracuse. 

He is obviously a man who has spent his lifetime trying to help 
others. We are delighted to have you here, Mr. O'Connell. 

STATEMENT OF BRIAN O'CONNELL, PRESIDENT, INDEPENDENT 

SECTOR 

Mr. O'Connell. Thank you, Mr. Chairman. 

I confess that the testimony by the Comptroller General was so 
revealing that I momentarily don't have complete control. I wish I 
did and I will explain that if you will bear with me. 

First of all, I would like to be able to submit the entire testimony 
for the record. 

Mr. Brooks. Without objection. The gentleman will proceed. 

Mr. O'Connell. I've spent 30 years in this voluntary philan- 
thropic sector and have never known so total an impugning of the 
integrity of all of its institutions. For 3 weeks I have been trying to 
find out what the facts are and where in the world this rampant 
disregard for the law exists. I have not seen it in those 30 years. I 
have been told repeatedly by the Office of Management and Budget 
that the excesses are egregious and that when the GAO revealed 
its report, I would be ashamed, and that was the word used, I 
would be ashamed that I try to represent voluntary and philan- 
thropic institutions. Repeatedly I have tried to get that report and 
GAO said they knew of no such report, OMB said it may not have 
been released yet, "but wait until you see it, you will be embar- 



73 

rassed, chagrined; you will go back with your tail between your 
legs." 

I finally got ahold of the report that was referred to twice earlier 
this morning. It does not deal with this entire sector. This so-called 
scathing report is an innocuous report dealing only with family 
planning and as the Comptroller General himself has just revealed, 
even when they looked at that narrow, certainly politically active 
segment, they found very few problems. 

So here we have a campaign that has been now waged for a 
month that says this sector that I care passionately about, and you 
do, sir, has been in rampant disregard of the law. In today's New 
York Times, Mr. Horowitz, who is still speaking out, says "The 
budget office moved for tighter regulations because there were 
rampant abuses of existing rules against Federal money for lobby- 
ing activities." 

This small innocuous GAO report is the basis of all of his state- 
ments and the Comptroller General who issued this report just said 
to you twice, that as far as he is concerned, they do not believe 
that significant excesses exist. Now, I think it is absolutely shame- 
ful that this or any administration should willy-nilly float these 
balloons as they were described, that so totally undermine the 
public confidence in a sector that the President and all of us care 
terribly about. 

I have, with Barber Conable and others, attempted to work with 
OMB to say "What adjustments can we make in the current ac- 
counting system?" and have been told that GAO and all who have 
looked at it said that it is totally impossible to take the current ac- 
counting and auditing mechanisms and make them work. We have 
just heard here for the first time, in answer to Mr. Horton's ques- 
tion, in answer also to Mr. dinger's points, that the current ac- 
counting and auditing mechanisms can work and do work. We 
have also heard that if there are egregious violations of the law, 
whether it is Lockheed or any voluntary group, the administration, 
the Government should move steadfastly into those abuses. I 
object, as Mr. Frank clearly does, to this across-the-board attack on 
the integrity of volunteers, of givers, voluntary institutions and 
philanthropic groups. They are not simply talking about organiza- 
tions that one or more of us might have some questions about in 
terms of honest disagreements about their program goals. They are 
talking about the Foreign Policy Association on issues of disarm- 
ament, the National Wildlife Federation on endangered species and 
lands, the American Enterprise Institute on its health care studies, 
the American Red Cross on disaster relief, Goodwill Industries on 
the sheltered workshops, the Baptist Church on homes of the aged, 
Jewish Federations on social services, the American Museum Asso- 
ciation on national endowment of the arts, Catholic Charities on 
refugees and the homeless. 

Almost every hospital, church denomination, social service 
agency, research institute, historical society, is impacted heavily by 
these proposed changes. 

I am told and I am not a lawyer so I wanted to be absolutely sure 
of my grounds before speaking here or elsewhere, I am told by con- 
stitutional lawyers that the proposals are clearly unconstitutional 
on two grounds: That OMB has gone beyond its statutory limits in 



74 

making law through regulations rather than clarifying law, and 
that on first amendment rights it is clearly unconstitutional. 

I will further say that to Mr. Wright's testimony and I respect 
him as an individual, I am outraged that on the basis of what I 
have now learned about the GAO's report and the GAO's opinion 
about how this should be dealt with, that they want to proceed and 
in just 2 weeks come forward with revised proposals. I think during 
that period they will continue to give the impression that volun- 
tary institutions are in violation of the law, and they will continue 
to say there are rampant violations of the law by organizations. I 
think it is all the more argument why they should withdraw. 

I think it is important to your understanding of my attempt to 
look at this in a balanced way, that my organization has for the 
past 18 months been trying to back off so-called liberal organiza- 
tions that want to get at the Moral Majority and other conserv- 
ative electronic evangelical churches because these liberal groups 
feel that the churches have had undue influence in the electoral 
process. 

I have been attempting to say there are enough laws on the 
books now that we don't need more laws to protect us from the left 
or the right. Most important is the constitutional protections of 
freedoms of speech and assembly. Let's not start closing in on one 
another because we don't like what Planned Parenthood does or we 
don't like what the Moral Majority does. 

I have also worked hard with this administration for 2 years on 
its private sector initiatives project. My timesheet shows that 
during the first year of that activity I spent almost a third of my 
time working with the President and the administration applaud- 
ing, and encouraging their attempts to strengthen private sector 
initiatives, voluntary activity, private giving. I have been facing 
many organizations who were skeptical and cynical. I continue to 
feel that it is important for all of us who care about voluntary ini- 
tiative to work with any President who wants to encourage that 
kind of behavior but I do say it is time that this President stepped 
in to strengthen the organizations, that are the vehicles through 
which the country's voluntary impulse has always been pursued. 

Thank you. 

[Mr. O'Connell's prepared statement follows:] 



75 



Testimony of Brian O'Connell Before the House Subcommittee on 
Legislation and National Security 



I am Brian O'Connell, president of INDEPENDENT SECTOR, an organization of 
466 national foundations, voluntary organizations, and business corporations 
that have significant contributions programs. (The list is attached.) These 
groups have joined together in INDEPENDENT SECTOR to strengthen our national 
tradition of giving, volunteering and not-for-profit initiative. The organi- 
zations are as different as American Heart Association, United Negro College 
Fund, The Rockefeller Foundation, National Council of Churches, Shell Oil 
Companies Foundation, American Association of Museums, The General Mills 
Foundation, National Council of La Raza, Planned Parenthood and Catholic 
Charities. The common denominator among this diverse mix is their shared 
determination that people will have greater opportunity to influence their 
own lives and the kind of society in which they live. 

For two years I have applauded and worked with President Reagan's efforts to 
strengthen the country's voluntary impulse. Simultaneously I have criticized 
the Administration's budget cuts that disproportionately impact voluntary 
organizations and the people they serve even while the Administration has 
called on these groups to substitute for reduced government services. 

At the heart of that dilemma was the Administration's failure to recognize 
that for twenty-five years the Federal government has preferred to fulfill 
many of its responsibilities by contracting with voluntary organizations 
rather than build its own hospitals, day care centers, and homes for the aged. 
Today one-third of the income of the voluntary sector comes from government 
grants, contracts and payments for service. (The other two-thirds comes in 



20-644 0-83 6 



76 



approximately equal proportions from contributions and user fees such as 
tuition.) Within this financial reality, it is not practical or fair to cut 
the one-third share of support for sheltered workshops and job training 
programs run by voluntary organizations, and then leave the impression that 
these voluntary groups will absorb cutbacks in government-run programs. 
This awful crunch is compounded by the human response of governmental 
bureaus to pass along to voluntary organizations the larger proportion 
of mandated cuts. It's much easier to reduce the line item for external 
contracts than to fire people around you. 

In the face of these disproportionate cuts and unrealistic expectations, 
many leaders on the voluntary side have become skeptical, if not cynical, 
about the President's interest. 

Against this uneasy backdrop, the Administration has now proposed a fuller 
change in relationships that would substantially reduce the capacity of 
voluntary organizations to be of public service — and with this stroke they 
have changed the skepticism and cynicism to bewilderment and hostility. The 
Administrations's new proposals (0MB Circular A-122, January 24, 1983) will 
mean that a voluntary organization that receives any government money will 
lose its right to influence that government. Simultaneously they propose 
to greatly broaden the list of prohibited activities to include any contacts 
with legislatures, elected officials, administrators, regulatory boards and 
courts. The purpose of these proposals is to come up with a new way to be sure 
that tax dollars are not used to finance political activity which is already 
illegal, but their plan is frightening. 



77 



The Administration argues that the only way an organization should retain 
its right to provide services, and also engage in advocacy, is by establishing 
separate offices, staff and equipment for each. For example (and the Office 
of Management and Budget has acknowledged to me that this example is valid), 
a voluntary organization that receives only 5 percent if its total budget from 
a government program grant and devotes only 5 percent of its time to advocacy 
efforts would not be allowed to have its staff director, office or equipment 
used for both parts of the program, even though no part of the government 
grant is assigned to advocacy. 

Here are three examples of how sweeping and stifling these proposals are. 

1. For the small voluntary organization -- and these are the majority -- 
the regulations are totally unworkable. The proposed regulations would 
require that a current one person organization would have to have two separate 
persons and offices or lose either the federal grant or its advocacy rights. 
Many small and mid-sized voluntary organizations accept government funding 
at the urgent behest of government, which has seen that these voluntary 
groups are already working with people about whom the government has become 
concerned and because the government does not want to expand its own direct 
operations. It is unreasonable and shortsighted that an organization that 
agrees to help government train handicapped workers cannot use any proportion 
of the same staff, office or equipment to perform those services if those 

same people or facilities are even minimally engaged -- with contributed 
income -- in trying to work with government to improve the overall system 
of services for the handicapped. It is simply not pracitical to expect that 
small organizations can divide and fund both functions. 



78 



2. Even in a larger organization, it is not possible fo»* the 
executive director to divorce himself or herself from one side of the 
operation. If he or she is the chief staff officer, then he or she is 
responsible for all the important pursuits of that organization. Even if 

they could afford two separate staffs and offices, executive directors wouldn't 
be worth their salt if in any significant proportion of their activities they 
have to disqualify themselves. 

When the government comes to the voluntary organization requesting help with 
certain public services, or when the voluntary organization seeks to perform 
services, the government usually requires that a proportion of the executive's 
time be assigned to the project. This is a measure of assurance that the 
project is viewed as that important and will get that level of attention. It 
is utterly unfair and unrealistic to require that the executive director dis- 
qualify himself or herself on either the direct service or the advocacy side. 

During the past year, President Reagan has quite appropriately applauded the 
New York City Partnership. I wonder if he read the New York Times story Friday, 
February 4, in which it was pointed out that the Partnership's income includes 
"millions of dollars in federal money" and, separately, that "its lobbying 
has been effective". The story also indicates that its first full-time executive 
director, Frank Macchiarola, will soon be on board. Can the Administration 
really believe that Mr. Macchiarola will not be involved on all sides of the 
program? 

3. Most voluntary organizations cannot possibly be on just one side or 
the other. An Administration representative shouted at me that it is wrong 



79 



for an organization that delivers food to the poor to also try to influence 
the food stamp program. Taking it to a hopefully less charged example, I 
pointed out that in the past five or six years the government has come to 
voluntary groups with an almost desperate plea for help in dealing with the 
deinstitutionalization of mental hospital patients who have been put on the 
street without any arrangements for their health, employment, housing, financial 
and other pressing needs. Many voluntary mental health facilities have 
responded beautifully. It is inconceivable that the Administration should 
require that those who run these halfway houses or other community services 
must not work with government to help develop the comprehensive mental health 
services that in the end will provide for both early discharge and orderly 
community follow through. 

A good agency that works closely with human beings is often in the best 
position to work constructively with government to develop the laws, regulations 
and programs appropriate for the people that both sides care about. It is 
naive in the extreme for the Administration to assume that a voluntary organi- 
zation that cares deeply about housing, jobs, health, museums, or refugees 
won't have to be on both sides of the fence, or that the executive must 
decide which side he or she will guarantee to stay away from. It would have 
been unconscionable during the refugee crisis for the government to say to 
the Catholic Relief Agency, "For God's sake, help us solve this problem, but 
because we're going to underwrite part of your help, don't you dare use any 
of your contributed income to try to influence how this program is conceived, 
legislated, organized or operated." 

Voluntary organizations are already prohibited from using any part of a grant 
or contract for political or lobbying activities. To retain their tax exempt 



80 



status, they also cannot use any contributed funds for political activity 
and they must observe very strict limitations on advocacy efforts. These 
are monitored by accounting and auditing systems which all concerned are 
constantly struggling to improve. These systems are still imperfect, but 
it is better to struggle to improve them than to impose a crippling simplicity 
that would deny government the combination of services and opinions it needs. 
The Administrations' s proposals are not only unworkable, but fundamentally 
wrong. 

It's time the President stepped in to strengthen the organizations that are 
the vehicles through which the country's voluntary impulse is pursued. 



81 



INDEPENDENT SECTOR VOTING MEMBERS 
(As of March 1 , 1983) 



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82 



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BankAmerica Foundation 
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Benton Foundation 
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Boy Scouts of America 
Boys Clubs of America 
Bread for the World Educational 

Fund, Inc. 
Bristol-Myers Company 
Brookings Institution 
Burlington Northern Foundation 
Burroughs Corporation 
Business and Professional Women's 

Foundation 
Business Committee for the Arts, 

Inc . 
California Community Foundation 
Call for Action, Inc. 
Camp Fire, Inc. 
Cancer Care, Inc. and The 

National Cancer Foundation, 

Inc . 
Carnegie Corporation of New York 
Carter Hawley Hale Stores, Inc. 
Catalyst 

Caterpillar Foundation 
CBS Inc. 

Center for Citizenship Education 
Center for Corporate Public 

Involvement 
Center for Responsive Governance 
Champion International 
Chase Manhattan Bank, N.A. 
Chemical Bank 
Chevron U.S.A., Inc. 
Children's Aid International 



Christian Ministries Management 

Assoc ia t ion 
CIGNA Corporation 
Citibank. N.A. 
Citizen's Scholarship Foundation 

of America , Inc . 
Cleveland Foundation 
Clorox Company Foundation 
Close Up Foundation 
Coca-Cola Company 
CODEL, Inc. 
College Board 

Colonial Williamsburg Foundation 
Colt Industries Inc. 
Columbus Foundation 
Committee for Corporate Support 

of Private Universities, Inc. 
Committee for the Study of 

Handgun Misuse 
Committee to Combat Huntington's 

Disease, Inc. 
Commonwealth Fund 
Conoco, Inc. 
Conservation Foundation 
Consolidated Natural Gas 

Company 
Consortium for International 

Citizen Exchange 
Continental Bank Foundation 
Continental Group Foundation, 

Inc . 
Corning Glass Works Foundation 
Coro Foundation 
Corporation for Enterprise 

Development 
Council for the Advancement and 

Support of Education 
Council for the Advancement of 

Citizenship 
Council for American Private 

Education 
Council for Financial Aid to 

Education 
Council of Better Business 

Bureaus/Philanthropic Advisory 

Service Division 
Council of Engineering and 

Scientific Society Executives 
Council of Independent Colleges 
Council of Jewish Federations 
Council on Foundations 
Council on International and 

Public Affairs 
CPC International, Inc. 



83 



Zrown Zellerbach Foundation 

;rum and Forster Foundation 

Suramins Engine Company, Inc. 

Tharles A. Dana Foundation, Inc. 

)art 4 Kraft, Inc. 

)ayton Hudson Corporation 

Jeere and Company 

Deloitte Haskins 4 Sells 

jeraldine R. Dodge Foundation 

3aylord Donnelley Foundation 

Dresser Industries, Inc. 

Drown Foundation 

Duke Endowment 

E.I. Du Pont de Nemours and 

Company 
Durfee Foundation 
Dyson Foundation 
Eastman Kodak Company 
Eaton Corporation 
Educational Testing Service 
Emerson Electric Company 
Energy Conservation Coalition 
Enterprise Foundation 
Environmental Law Institute 
Epilepsy Foundation of America 
Equitable Life Assurance Society 

of the United States 
Esoark, Inc. Foundation 
Evangelical Council for Financial 

Accountability 
Exxon Corporation 
Family Service Association of 

America 
Federated Department Stores, Inc. 

Foundation 
Fireman's Fund Insurance Company 

Foundation 
Fluor Corporation 
Ford Foundation 
Ford Motor Company Fund 
Foremost-McKesson Foundation, 

Inc . 
Foundation Center 
Foundation for Children with 

Learning Disabilities 
Foundation for Teaching Economics 
Fre3h Air Fund 

Future Homemakers of America 
Gannett Foundation 
General Conference of Seventh-day 

Adventists 
General Electric Company 
General Mills Foundation 
General Motors Foundation 



General Telephone 4 Electronics 
Girl Scouts of the U.S.A. 
Girls Clubs of America, Inc. 
Morris Goldseker Foundation 

of Maryland , Inc . 
Goodwill Industries of America 
Grace Foundation, Inc. 
William T. Grant Foundation 
Grotto Foundation 
Gulf Oil Corporation 
Gulf ♦ Western Foundation 
George Gund Foundation 
Miriam and Peter Haas Fund 
Walter and Elise Haas Fund 
Hallmark Cards, Inc. 
Hawaiian Foundation 
Edward W. Hazen Foundation 
H.J. Heinz Company Foundation 
Heublein Foundation, Inc. 
William and Flora Hewlett 

Foundation 
Hewlett-Packard Company 

Foundation 
Hof fmann-LaRoche Foundation 
Hogg Foundation for Mental Health 
Hospital Research and Educational 

Trust 
Hunt Foundation 
IBM Corporation 
Independent College Funds of 

America, Inc. 
Independent Research Libraries 

Association 
Inland Steel-Ryerson Foundation, 

Inc . 
Institute for Journalism 

Education 
International Christian Youth 

Exchange 
International Service Agencies 
International Telephone and 

Telegraph 
International Women's Health 

Coalition 
Interracial Council for Business 

Opportunity 
James Irvine Foundation 
Irving Trust Company 
Ittleson Foundation 
Jerome Foundation 
JWB 

Robert Wood Johnson Foundation 
Johnson 4 Johnson 
Joint Action in Community Service 



84 



Joint Center for Political 

Studies 
Jostens Foundation, Inc. 
Joyce Foundation 

Henry J. Kaiser Family Foundation 
W.K. Kellogg Foundation 
Charles F. Kettering Foundation 
Esther A. and Joseph Klingenstein 

Fund , Inc . 
Kresge Foundation 
Samuel H. Kress Foundation 
Albert Kunstadter Family 

Foundation 
LEAD Program in Business, Inc. 
League of Women Voters Education 

Fund 
Leukemia Society of America, Inc. 
Ell Lilly and Company 
Lilly Endowment, Inc. 
Henry Luce Foundation 
Lutheran Brotherhood Foundation 
Lutheran Council in the U.S.A. 
Lutheran Resources Commission - 

Washington 
Lyndhurst Foundation 
J. Roderick MacArthur Foundation 
John D. and Catherine T. 

MacArthur Foundation 
March of Dimes Birth Defects 

Foundation 
John and Mary R. Markle 

Foundation 
Hay Department Stores Company 
Louis B. Mayer Foundation 
Robert R. McCormick Charitable 

Trust 
McDonald's Corporation 
McDonnell Douglas Corporation 
McGraw-Hill Foundation 
Mellon Bank Foundation 
Merck Company Foundation 
Joyce Mertz-Gllmore Foundation 
Metropolitan Life Foundation 
Mexican-American Legal Defense 

and Educational Fund 
Eugene and Agnes E. Meyer 

Foundation 
John Milton Society for the Blind 
Minneapolis Foundation 
Mobil Oil Corporation 
Monsanto Company 
Philip Morris, Inc. 
Charles Stewart Mott Foundation 
Stewart R. Mott Charitable Trust 



t ional 
s 
rt 

munity 



ines: 
Inc , 
Cour 



Ms. Foundation for Women 
Mutual Benefit Life 
NAACP Legal Defense and 

Educational Fund, Inc. 
National Academy of Public 

Administration 
National Alliance for the 

Mentally 111 
National Alliance for Op 

Parenthood 
National Alliance of Bus 
National ALS Foundation, 
National American Indian 

Judges Association 
National Assembly of Com 

Arts Agencies 
National Assembly of National 

Voluntary Health and Social 

Welfare Organizations, Inc. 
National Assembly of State Arts 

Agencies 
National Association for 

Bilingual Education 
National Association for Hispanic 

Elderly 
National Association for Hospital 

Development 
National Association for Visually 

Handicapped 
National Association of 

Independent Colleges and 

Universities 
National Association of 

Independent Schools 
National Association of Public 

Television Stations 
National Association of Schools 

of Art and Design 
National Association of Schools 

of Music 
National Association of Social 

Workers 
National Association on Drug 

Abuse Problems 
National Audubon Society 
National Black Media Coalition 
National Black Programming 

Consortium , Inc . 
National Board of Young Men's 

Christian Associations 
National Board of the Young 

Women's Christian Association 

of the U.S.A. 
National Catholic Development 

Conference , Inc . 



85 



National Center for a Barrier 

Free Environment 
National Coalition of Hispanic 

Mental Health and Human 

Services Organizations 

(COSSHHO) 
National Committee for Citizens 

in Education 
National Committee for the 

Prevention of Child Abuse 
National Concilio of America 
National Conference of Catholic 

Charities 
National Congress for Economic 

Development 
National Congress of American 

Indians 
National Consumers League, Inc. 
National Corporate Fund for Dance 
National Council for Children and 

Television 
National Council of La Raza 
National Council of the Churches 

of Christ in the U.S.A. 
National Council of Women of the 

United States, Inc. 
National Council on Alcoholism 
National Easter Seal Society, 

Inc . 
National Economic Development and 

Law Center 
National Executive Service 

Corps . 
National Family Planning and 

Reproductive Health 

Association, Inc. 
National Federation of State 

Humanities Councils 
National 4-H Council 
National Fund for Medical 

Education 
National Future Farmers of 

America , Inc . 
National Health Council, Inc. 
National Hispanic Scholarship 

Fund 
National Hospice Organization 
National Image, Inc. 
National Indian Youth Council 
National Information Bureau, Inc. 
National Legal Aid and Defender 

Association 
National Medical Fellowships, 

Inc . 



National Mental Health 

Association 
National Opera Institute 
National Park Foundation 
National Park3 and Conservation 

Association 
National Public Radio 
National Puerto Rican Coalition 
National Puerto Rican Forum, Inc. 
National Scholarship Service and 

Fund for Negro Students, Inc. 
National School Volunteer 

Program, Inc. 
National Society for Autistic 

Children 
National Society of Fund Raising 

Executives 
National Society to Prevent 

Bl i ndness 
National Tribal Chairmen's 

Association 
National Trust for Historic 

Preservation 
National Urban Coalition 
National Urban Fellows, Inc. 
National Urban League, Inc. 
National Wildlife Federation 
National Youth Work Alliance, 

Inc. 
Native American Rights Fund 
Natomas Company 
Nature Conservancy 
Neighborhood Coalition 
New England Mutual Life Insurance 

Company 
New World Foundation 
New York Community Trust 
New York Life Foundation 
New York Time3 Company Foundation 

Inc . 
NL Industries Foundation, Inc. 
Nordson Foundation 
Northwest Area Foundation 
NOW Legal Defense and Education 

Fund 
Older Women's League 
Olin Corporation 
Opera America 
Organization of Chinese American 

Women 
Organization of Chinese Americans 
Owens-Illinois, Inc. 
Oxfara America, Inc. 
David and Lucile Packard 

Foundation 



86 



Parents Anonymous 
Parents Without Partners 
Partners for Livable Places 
J.C. Penney Company, Inc. 
People-to-People Health 

Foundation, Inc. (Project HOPE) 
Pepsico Foundation, Inc. 
Permanent Charities Committee of 

the Entertainment Industries 
Permanent Charity Fund of Boston 
Petro-Lewis Corporation 
Pfizer Foundation, Inc. 
Phillips Petroleum Company 
Piton Foundation 
Planned Parenthood Federation of 

America, Inc. 
Polaroid Foundation, Inc. 
Population Crisis Committee/ 

Draper Fund 
Population Resource Center 
Premier Industrial Foundation 
Private Agencies in International 

Development 
Procter and Gamble Fund 
Project Orbis, Inc. 
Prudential Foundation 
Puerto Rican Legal Defense 4 

Education Fund, Inc. 
RCA Corporation 

Reader's Digest Association, Inc. 
Reading is Fundamental, Inc. 
Reinberger Foundation 
Republic Steel Corporation 
Charles H. Revson Foundation 
R.J. Reynolds Industries, Inc. 
Rockefeller Brothers Fund 
Rockefeller Family Fund 
Rockefeller Foundation 
Rockwell International 

Corporation Trust 
Rosenberg Foundation 
Samuel Rubin Foundation 
Safeco Insurance Companies 
Russell Sage Foundation 
Saint Paul Foundation 
Salvation Army 
San Francisco Foundation 
Save the Children 
Schering-Plough Corporation 
Dr. Scholl Foundation 
Sears, Roebuck and Co. 
Shell Companies Foundation, Inc. 
Sherwin-Williams Company 
Lois and Samuel Silberman Fund 
Alfred P. Sloan Foundation 
Spencer Foundation 
Spring Hill Center 
Standard Oil Company (Ohio) 
W. Clement and Jessie V. Stone 

Foundation 
Levi Strauss Foundation 
Student Conservation Association, 
Inc . 



Sun Company , Inc . 
Support Center 
Syntex (U.S.A.), Inc. 
Taconlc Foundation, Inc. 
Tandy Corporation 
Teachers Insurance and Annuity 
Association of America/College 
Retirement Equities Fund 
(TIAA-CREF) 
Telecommunications Cooperative 

Network 
Tenneco Inc. 
Texaco Inc. 
Textron, Inc. 
3M Company 
Time Inc. 

Times Mirror Foundation 
Tosco Corporation 
Transamerica Corporation 
Travelers Insurance Companies 
Trebor Foundation 
Trilateral Commission 
Trout Unlimited 
Trust for Public Land 
TRW, Inc. 

Union Carbide Corporation 
Union Pacific Foundation 
United Jewish Appeal 
United Negro College Fund 
United Parcel Service of 

America, Inc. 
United States Catholic Conference 

United States Committee for 
UNICEF 

United States Olympic Committee 

United States Steel Foundation, 
Inc . 

United Way of America 

Urban Institute 

Urban Investment and Development 
Company 

van Ameringen Foundation 

VOLUNTEER: The National Center 
for Citizen Involvement 

Volunteers of America 

Wain Foundation 

Izaak Walton League of America 

Warner Communications, Inc. 

Eloise and Richard Webber 
Foundation 

Weingart Foundation 

Westinghouse Electric Corporation 

Weyerhaeuser Foundation 

Women and Foundations/Corporate 
Philanthropy 

Women in Community Service, Inc. 

Women's Action Alliance, Inc. 

Women's Sports Foundation 

World Crafts Council 

World Neighbors 

Xerox Corporation 



87 

Mr. Brooks. I want to thank you very much for an excellent 
statement. I read your statement last night and I thought it was 
good. I also think your statement here today was exceptional. 

I have just one question for you. 

How extensively would these proposed revisions affect nonprofit 
organizations? 

Mr. O'Connell. So extensive as to be devastating, that it would 
affect groups as research oriented, and conservatively identified as 
the American Enterprise Institute, it would affect the American 
Red Cross, as it attempts to deal with the Government on disaster 
relief, it would affect the Baptist Church as it struggles with homes 
for the aged. It would impact so many voluntary institutions and 
the people they serve as to be an unconscionable encroachment on 
the efforts of both Government and private organizations to be of 
public service. 

Mr. Brooks. Thank you. Any questions; Mr. Horton? 

Mr. Horton. I don't have any questions, thank you. 

Mr. Brooks. Mr. Clinger. 

Mr. Clinger. Thank you, Mr. Chairman. I just have one ques- 
tion. What do you feel about registered lobbyists? Should any por- 
tion of their funds in your view be permitted to be paid by Federal 
funds? 

Mr. O'Connell. Not unless the grant under which they are oper- 
ating specifically makes that permission, that is, we are not argu- 
ing that Government funds should be used for lobbying. We do 
argue strongly that advocacy goes far beyond lobbying and that 
most voluntary institutions with their contributed money should be 
allowed to represent citizen concerns and clearly our whole demo- 
cratic process is to give people access, to have some empowerment, 
to have some influence. If that is through a paid lobbyist, and they 
want to do that through their contributed money, that is a legiti- 
mate expense, but I would agree that it should not be part of the 
grant or contract. 

Mr. Clinger. Thank you. 

Mr. Brooks. Thank you again, sir, for your time and patience. 

Our next witness this morning is Mildred H. Shanley, of Brook- 
lyn, N.Y., representing the National Conference of Catholic Chari- 
ties. She is a graduate of St. John's Law School in Brooklyn, and 
has worked for Catholic Charities for 22 years. 

She is chairman of the National Conference of Catholic Chari- 
ties' Legislative Committee, a member of the American Bar Associ- 
ation's Family Law Section, a member of the Catholic Lawyers 
Group in Brooklyn and in Queens and serves on the board of a 
number of local volunteer organizations. 

Ms. Shanley, we are delighted to have you here and you may 
summarize your statement, if you see fit. 

STATEMENT OF MILDRED SHANLEY, STAFF COUNSEL, CATHOLIC 
CHARITIES OF THE DIOCESE OF BROOKLYN 

Ms. Shanley. Thank you very much. We did submit a written 
statement which we would like included in the record, if that's pos- 
sible. 



88 

Mr. Brooks. Without objection, it will be done, and thank you, it 
is a good one. 

Ms. Shanley. Thank you. We enjoy the freedom of testifying 
today on OMB Circular A-122 as we have enjoyed in the past 
bringing various concerns before Congress for their consideration. 
We seriously object that this circular could curtail such opportuni- 
ties in the future. We fully concur that Federal funds should not be 
used to influence legislation or to engage in advocacy contrary to 
the legislative intent of authorizing legislation, and I think we 
have an example in the Older Americans Act where the act itself 
encourages client representation and advocacy for entitlements of 
the seniors. 

But even beyond this, we do engage in advocacy often on the 
State level in terms of securing laws which are faithful to the 
congressional intent of Federal enactments. And I point out as an 
example being sure that COLA increases in the supplemental secu- 
rity income benefits be passed through to recipients in a State like 
New York, rather than be used to write off supplemental State 
payments which are made. We also engage in advocacy on the Fed- 
eral level, and most recently we were very involved in the terms 
and conditions that were contained in the Child Welfare and Adop- 
tion Subsidy Act. The purpose was to try to form Federal policies 
so as to encourage State practices which fall to the best interests of 
children. 

We have also engaged in testimony on the Social Security Act, 
on the food stamp program, on the fodd commodities bill, and over 
the years on the various forms which the welfare programs have 
taken. We engage in these activities without any improper use of 
Federal funds and in conformity with IRS regulations governing 
political or partisan activity and substantial legislative restrictions. 
We do not engage in elective politics and we have conformed with 
IRS regulations on voter education so as not to indirectly influence 
the elective process. Our legislative activities are clearly within the 
IRS stostantiality limitations. 

This proposal is most objectionable to us in that it restricts the 
use of our own property and our. own funding to avoid what may 
appear to some as Federal support for particular positions in public 
debate. We find this to be an unreasonable limitation and one of 
questionable constitutionality. We raise this clearly in terms of our 
own protected freedom of speech and right to petition and also in 
terms of an unjust and unreasonable control on the use of private 
property. 

We are unaware of any instances of improper use of Federal 
funds for political activities in the nonprofit sector. If in fact there 
are such inappropriate uses, we would be glad to cooperate in any 
reforms growing out of such abuse. 

There is overreaching, however, when the declared intent of reg- 
ulation is to avoid apparent, as distinct from real, abuse through 
the control of the use of private, as distinct from public, funds in 
activities which we have been taught are a fundamental constitu- 
tional right. We believe we are a vital part of American society and 
we have committed ourselves not only to alleviate the suffering of 
the poor through almsgiving, but also to work for justice in the in- 
terest of the common good. We cherish the freedoms this country 



89 



assures its citizens and citizen groups. We therefore implore you to 
do whatever is possible to assure the withdrawal of the proposed 
amendments to Circular A- 122. Thank you. 
[Ms. Shanley's prepared statement follows:] 



90 



TESTIMONY OF 

MILDRED SHANLEY 

STAFF COUNSEL 

CATHOLIC CHARITIES OF THE DIOCESE OF BROOKLYN 

ON BEHALF OF THE 

NATIONAL CONFERENCE OF CATHOLIC CHARITIES 



I am Mildred Shanley, Counsel and Program Officer with Catholic Charities 
of the Diocese of Brooklyn, New York. I am also the Chairman of the Legislative 
Committee of the National Conference of Catholic Charities. It is in this 
latter context that I testify on hehalf of the approximately 1000 Catholic 
Charities diocesan and branch agencies and related institutions providing 
human services in virtually every county of the United States. 

The issue before us and before this Subcommittee is the proposal by the 
President's Office of Management and Budget to drastically alter the vital 
historical role of voluntary, including religious, associations in our society 
in relationship to public policy and the role of the federal, state and local 
government. The Administration has invented a concept of "political advocacy", 
which has no constitutional or other legal basis, and under its definition 
would proscribe nearly all activity on behalf of the organized voluntary 
sector which during the history of our country has given our government its 
meaning and its role. If the proposed amendments to 0MB Circular A-122 were 
now in effect, I could not even be here discussing this historical role with 
you. The change proposed is so drastic, so fundamental, so contrary to our 
laws, so unconstitutional, that if it is not withdrawn and is allowed to go into 
effect, we would have to resurrect Alexis de Tocqueville to undertake a new 
tour of this nation, whereupon he would have to sadly observe that the 
previous voluntary sector genius which gave this nation and its government 
its vitality has largely been stilled. 

It is ironic that an Administration which prides itself on encouraging 
the strengthening of the private, voluntary and non-profit sector contains 
within it high officials with anti-democratic beliefs who would silence the 
voluntary sector from coming forth with a defense of the elderly, the sick, 
the homeless, the foster children, the refugees, indeed, the constitutional 
rights of the non-profit sector itself. 



91 



We hope that the proposal before us is simply the lack of thought, the 
lack of historical and constitutional insight, the product of simplistic 
reasoning, or the product of a random zealot or a rogue elephant in the 
Administration. If not, it represents the kind of thinking and the imposition 
of arbitrary will which can destroy our civil liberties. If, as we believe, 
it is unreasoned, unconstitutional and far exceeding either OMB's jurisdiction 
and the laws of Congress, we would expect the Administration to withdraw 
the proposed regulation. 

While it is true that the National Conference of Catholic Charities does 
not presently have a federal grant - it recently did - Catholic Charities of 
Brooklyn has a number of such grants which would bring us under the 
regulations. So, too, for Catholic Charities throughout the country. The 
government relies on us and other church sponsored and secular non-profit 
agencies to deliver human services. If you preclude an agency such as 
Catholic Charities, which has advocacy for social justice among its stated 
purposes, from delivering services with government funds, you will wind 
up with an even larger government bureaucracy, and you will have a statist 
system of human services. 

Independent Sector's President Brian O'Connell's major categories of 
criticism of the pending rule change seem to have defined the debate. The 
proposedcjrule=is''unnecessary. The propsoed rule is unworkable. The proposed 
rule is unconstitutional as well as well beyond the laws of the United States. 
UNNECESSARY 

At the outset, let me state that Catholic Charities supports the 
proposition that federal funds should not be used to influence legislation 
unless in its wisdom the laws passed by Congress and signed by the President 
should permit some exceptions. In our own field, we note one exception in 
Title XX of the Social Security Act, the social service title, which has 
stated that social services are what the various states defined them to be. 
In this case, advocacy to secure entitlement benefits for the elderly and 
others was clearly a reimbursable expense and a permitted activity. There 
are others as well. 

Catholic Charities operates strictly within the current restrictions 
of the Internal Revenue Code. We do not participate in elective politics, 
and we do not violate the substantiality provisions of the Code. At the 
same time we are prohibited by law, and by our choice, from exercising the 
501(c) (h) option of the code which defines lobbying limitations in clear 
dollar terms. We would point out that the legislative history of this 
provision makes clear that it is meant in no manner to define "substantiality." 
Yet we feel that in practice we are likely to fall below the dollar marks in 
(c)(h). It is confusing if you would count a sermon in church on Sunday as 
grass roots lobbying rather than an act protected by the First Amendment. 



20-644 0—83- 



92 



In addition, we are careful to observe the strictures of other federal 
laws which prohibit the use of federal grant funds to influence legislation. 
We are unaware of a single abuse or violation by our member agencies of the 
provisions of the Code or other laws restricting advocacy. If there are 
abuses or violations, we would support action against them. We have, though, 
been unable to locate a copy of the purported GAO study of such abuses which 
is cited as a basis for the proposed rule change by the President's Office 
of Management and Budget. In addition, our national staff has been involved 
in discussions about the proposed rule with the Office of Management and 
Budget, and the OMB has not been able to cite any but a few purported abuses 
out of the several hundred non-profit organizations in our nation. 

It does, therefore, seem clear to us that the proposed change in OMB 
Circular A-122 must be designed to do something else than curb non-existent 
abuse. We believe that its author or authors intend the change to have a 
totally chilling effect on the relationship between the voluntary, independent 
non-profit sector of our country and the development and administration of 
our government's social policy responsibilities. 

UNWORKABLE 

That brings us to our second area of concern and opposition to the OMB 
proposal. We believe both that its administration would place an undue 
burden on government and the non-profit sector, and that its chilling effect 
would begin to revamp the historic role of voluntarism in our country, that 
role of the voluntary sector which has, as de Tocqueville observed some time 
ago, provides such vitality and creativeness for our nation. 

On the matter of administration or enforcement of the sweeping rule* 
I would observe that one of the major purposes of thousands of our voluntary 
associations - advocacy for any number of causes - would be denied, or 
thousands of these associations would die, and our society would suffer 
sorely for their death. On the other hand, in order to enforce the incredible 
breadth and depth of the order, the government would have to have squad after 
squad of investigators prowling the halls of tiny and large non-profit 
organizations, or terribly complex and frequent questionnaires too burden- 
some for all but the largest of the non-profit associations to complete. 

Frankly, we believe that if the order is to be permitted to go into 
effect, we will all witness the most massive movement of civil disobedience 
this country has ever seen. It does not seem wise to us, or possible, to 
generate respect for law by enacting unwise and utterly unenforceable laws. 

Let me cite just a few examples of what the regulation change might mean 
about the interaction between the Catholic Charities Movement and federal, 
state and local government. 



93 



Refugees to this country are not settled by the federal government, 
though the government, on behalf of all the people of the country, does pay 
some of the Initial costs of resettlement. Refugees are resettled by the 
non-profit sector, and in good measure by the religious groups of the country. 
In the case of the post-Viet Nam refugees, over 50% were resettled with the 
help of Catholic Charities agencies. Are our experiences and ideas only 
to be available to the government upon written request of each party in the 
government, on the federal, state and local level? And in the later case 
of Haitian refugees, we again and again had to appeal to Members of 
Congress and to the Justice Department, the Immigration and Naturalization 
Service, and the White House itself, and we had to join in representation 
before the courts to see that the laws of our nation were adhered to by our 
own government. Was this improper activity? It would largely be prohibited 
by the pending rule. 

Most children in foster care are under the jurisdiction, through the 
laws of the states or the action of the courts, of non-profit organizations 
such as Catholic Charities. We care for them and try to move them back into 
permanence with their families or, if that proves impossible, with loving 
adoptive parents. All of this service is partially reimbursed with state 
and federal funds, out of our nation's concern for the health and strength 
of children and their families. It became apparent some years back that the 
foster care system was sluggish, that thousands and thousands of children 
were being stuck there rather than being returned to or moved to permanence 
in a family. What happened? Non-profit groups appealed for changes In 
federal law to rectify this situation. And with the leadership of Congressman 
George Miller and then-Congressman John Rousselot of California, change was 
made. Was this inappropriate behavior on our part, as long as it was within 
the strictures of the Internal Revenue Code? The proposed 0MB rule would 
effectively forbid this sort of action. 

We could give hundreds of examples where interaction between those 
agencies delivering services and the government is essential to improve that 
service, and where the initiative must be taken by the service providers. 
I will give only one more. In the field of mental health, the government 
prematurely insisted on the deinstitutionalization of emotionally or mentally 
ill patients before there was a structure of halfway and other houses ready 
in the community, along with the supportive social service systems, to 
most enhance the ability of these citizens to cope. In community after 
community, agencies have had to initiate contacts with and combat zoning boards 
to enable the creation of small residential facilities in the neighborhoods 
of our cities and towns. Even this contact with local zoning boards would 
in many instances be prohibited by the 0MB change in Circular A-122. 



94 



It almost seems that the proposed change is designed to get the government 
out of human concerns and human caring altogether. It is quite apparent that 
government could not function as a supporter in these areas if the experience 
of the private sector is not available to it. 

UNCONSTITUTIONAL 

We believe the proposed rule change exceeds the authority of the OMB, 
violates and extends far beyond existing federal law in the Internal Revenue 
Code, the various authorizations and appropriations bills, and is, in fact, 
a violation of the First Amendment rights of our Catholic Charities organiza- 
tions. Others will spell out the arguments for these concerns in great detail. 
For our part, we can find no reasonable grounds for the executive branch of 
our government, or even, for that matter, the legislative branch, to curtail 
our right to speak and to petition our government. 

The National Conference of Catholic Charities is a party to an amicus 
brief on the First Amendment issue in the Taxation case before the Supreme 
Court. You can imagine how distressing it is to us to realize that if the 
proposed OMB restrictions were in effect, we might very well not even be 
able to appear as a friend of the highest court of our land on a matter 
central to our constitutional rights, unless we, ourselves, were a party 
to the suit involved. 

CONCLUSION 

There is a bottom line. Our examination of the issues and problems 
surrounding the OMB Circular A-122 change on advocacy suggests clearly that 
it cannot be amended before final promulgation, that it cannot be modified 
or changed around the edges. The regulation and the concept behind it is 
fundamentally flawed. The bottom line, the only acceptable action on the 
part of the government, is withdrawal of the proposal. 

We find it troubling that our government should have in our service 
people who are so insenstivie to the fundamental concepts underlying our 
democracy. We find the philosophy underlying the OMB rule to be totalitarian 
in nature. And we feel its promulgation would be totalitarian in effect. 



95 

Mr. Brooks. Thank you very much. I would like to ask you one 
question. How would this proposal affect the nonprofit organiza- 
tions' ability to deliver services at the local level? Would it have 
any impact there? 

Ms. Shanley. Yes; it would make us choose between delivering 
services, being able to speak out on current issues, or incur signifi- 
cantly increased costs to do both. 

Mr. Brooks. Mr. Horton? 

Mr. Horton. I have no questions, thank you. 

Mr. Brooks. Thank you. Mr. dinger? 

Mr. Clinger. Thank you very much, Ms. Shanley. 

Mr. Brooks. Our next witness is Robert Weymueller. Mr. Wey- 
mueller is director of government relations for the American Lung 
Association and formerly executive director of the Association's 
medical section. 

He has worked in the tuberculosis field since graduation from 
Kent State in 1949. That is a long time. You don't smoke ciga- 
rettes, do you? 

Mr. Weymueller. No, sir. 

Mr. Brooks. You have never found any evidence that cigar smok- 
ing causes any health problems, have you? 

Mr. Weymueller. I would rather pass on that. 

Mr. Brooks. We are delighted to have you with us and if you will 
proceed with a summary, we would accept your prepared statement 
for the record. 

STATEMENT OF ROBERT G. WEYMUELLER, DIRECTOR OF 
GOVERNMENT RELATIONS, AMERICAN LUNG ASSOCIATION 

Mr. Weymueller. Mr. Chairman, and members of the subcom- 
mittee, I am delighted to be here and I was particularly heartened 
by the thrust and tenor of your opening statements, Mr. Brooks, 
and Mr. Horton. I think that it is essential that we keep in mind 
that some damage has already been done out in the community 
just by the promulgation of the possibility of these amendments. 
Some of you may remember back to the early 1970's under a previ- 
ous administration when the IRS suddenly got on the case of sever- 
al voluntary health groups and it cast a chill on public advocacy 
that is still with many of our volunteers now. There was no nega- 
tive finding and nothing done but just the possibility scared people 
away from public advocacy. I think we are into this mode again. 

Mr. Brooks. Will the gentleman yield for a moment? 

Mr. Weymueller. Yes, sir. 

Mr. Brooks. There were several groups who were very interested 
in this particular hearing who said that, maybe they had better not 
testify publicly but that they wanted to submit statements. They 
didn't want to testify though and that proves that the chilling 
effect of just the promulgation of this kind of an edict is disastrous. 

Mr. Weymueller. Exactly. 

Mr. Brooks. For public opinion, and a free expression under the 
Constitution. 

Mr. Weymueller. That's right. 

The American Lung Association is America's oldest voluntary 
health association and we have had a lot of experience in this field. 



96 

We strongly oppose these proposals. We feel they are unnecessary 
and unreasonable, they should be pulled back, revoked and not just 
amended. And the sooner, the better. 

From the founding of the American Lung Association some 80 
years ago, our citizen volunteers have worked to improve the 
public health. Our basic approaches have been through education, 
demonstrations, and seed money for research. But we learned early 
on that one of the best ways for improving health was to improve 
public health policies so our entire history has included public ad- 
vocacy, starting with tuberculosis control and now covering all 
lung diseases. We have an oversight method within our organiza- 
tion for tracking those issues. The staff doesn't just decide that sud- 
denly we are going to take off and oppose or propose. We have a 
volunteer board of directors which determines which advocacy pri- 
orities are related to our health priorities. It is also our volunteers 
who are consulted regarding the appropriateness of occasional Gov- 
ernment grants that we receive to supplement our programs and I 
underscore occasional. 

Besides the oversight of our volunteers, public advocacy pro- 
grams operate within the constraints of the governing of all tax- 
exempt 5013C organizations, which we are. We are registered 
under the 1976 legislative law and, as you know, that legislation 
explicitly recognizes the validity of nonelectoral lobbying by groups 
such as ours, subject to certain conditions. When it comes to avoid- 
ing the use of Federal grant funds to lobby, that principle has long 
been established in law and that has been brought out here. In 
health for instance, since 1979 the Health and Human Services ap- 
propriations bills have routinely carried a prohibition against the 
use of any of those funds for lobbying. 

Ironically, the proposed restrictions come at the very time that 
the administration is trying to send a signal to the private sector 
that we should work more closely with Government, that we 
should be more supportive, take up some of the load previously 
done by Government. To add to the dilemma facing groups such as 
ours, the recent Executive order which has been alluded to here re- 
garding the Combined Federal Campaign declared that any of the 
participant health and welfare groups carrying out public advocacy 
programs would no longer be eligible to participate in CFC. I would 
remind you that the funds from this campaign are not grants. They 
are contributions of Federal workers. Now, just to cite one example 
of the public's benefit from advocacy of groups like ours, I would 
tell you about the Lung Association, Heart Association, and the 
Cancer Society 2 years ago working together with Members of Con- 
gress to save the funding for the Office on Smoking and Health 
which Mr. Stockman and others felt should be cut severely. The 
future of that office was in jeopardy. This at a time when the Sur- 
geon General was saying that smoking is the single most prevent- 
able cause of death in this country. And we were talking here 
about only $2 million for OSH. 

Now in fiscal 1984, I think it is ironic the President himself has 
recommended that that Office be increased in funding by 75 per- 
cent so apparently the administration now feels that the modest 
Federal program is worth not only saving but improving. 



97 

I would like to comment that most of the grants in my experi- 
ence over the years have been grants that the Government felt the 
private sector could do better or would do better with and I think 
they were right. The problems for the American Lung Association 
would be substantial under these regulations — but it is the small 
group that would really be devastated — the small health agencies 
and I cite just one, the National Society for Autistic Children 
which has seven full-time members. Yet it is a conduit for a 
$100,000 grant to help teach autistic children throughout the coun- 
try how to cope. That society would be devastated by what is being 
proposed. 

In the final analysis, the OMB proposals are essentially a matter 
of bureaucratic overkill on what is perceived as a major problem 
but is not. Thank you. 

[Mr. Weymueller's prepared statement follows:] 



98 



Testimony Presented By 

Robert G. Weymueller 

On behalf of 

American Lung Association 

I am Robert Weymueller, Director of Government Relations for the American Lung 
Association, which is this country's oldest voluntary health association. I very 
much appreciate the opportunity to express publicly the strong opposition of the ALA 
to the proposed amendments by the Office of Management and Budget to its "Cost 
Principles for Nonprofit Organizations" (OMB Circular A-122). The amendments which 
would greatly restrict and hamper the public advocacy of voluntary organizations 
that receive federal funds are unnecessary and unreasonable. They should be with- 
drawn not modified as OMB now says it will do in view of the firestorm of reaction 
from the private sector. They have doubtless already had a chilling effect on future 
advocacy plans of groups of all types because of the clouds of uncertainty that have 
been created. 

From the founding of the American Lung Association some 80 years ago, our 
citizen volunteers have worked to improve the public's health. Our basic approaches 
have been through education, demonstrations and seed money for research. We soon 
learned, however, that one of the fundamental ways to improve health is to improve 
public health policies at all levels. Our supporters expect this of us. Determining 
which advocacy issues relate to our health priorities is the responsibility of our 
volunteer board of directors. It is also our volunteers who are consulted regarding 
the appropriateness of occasional governmental grants to supplement our programs. 

Besides the oversight of our volunteers, the ALA public advocacy program is 
carried out within the constraints governing all tax-exempt organizations. In 
recent years, the Lung Association has come under the 1976 tax legislation passed 
by Congress. As you well know, that legislation explicitly recognized the validity 
of non-electoral lobbying by 501(c)3 nonprofit groups such as ALA, subject to 
certain conditions. When it comes to avoiding use of federal grant funds to lobby, 
that principle has long been established in law. One example relevant to grants to 
health organizations is the prohibition Congress has added to Health and Human 
Services appropriations bills in recent years barring use of any of these funds 
to lobby issues before Congress. 

Ironically, the proposed OMB restrictions send a negative signal to the 
private sector at just the time the Administration is asking the sector to pick 
up more of what the government has done in the past. To add to the dilemma facing 
charitable organizations, the recent Executive Order regarding the Combined Federal 
Campaign declared that any of the participant Health and Welfare groups carrying 
out public advocacy programs would no longer be eligible to participate in the CFC. 
In this instance, the funds in question are voluntary contributions from federal 
workers, not government grants. 

To cite just one example of the public's benefit from our advocacy, it was the 
Lung Association, Heart Association and Cancer Society at a key time two years ago 
that convinced Congress to restore funds for the Office of Smoking and Health after 
OMB had recommended severe cuts and its future was uncertain. Now, in FY 84, the 
OSH has been recommended for a 75% increase by the President. This is a remarkable 
turn around for the modest federal program dealing with smoke prevention education 
at a time the Surgeon General describes cigarette smoking as the chief cause of 
preventable deaths in this country. 



99 



By proposing changes that would force voluntary health organizations to choose 
between federal funds or their traditional public advocacy role, the OMB is creating 
an unusual problem for the government itself. It has been my observation that a 
substantial proportion of the health grants or contracts to groups such as ALA have 
been for the purpose of carrying out standard-setting or educational programs that 
the government believed, and rightly so, would be better accepted coming from the 
community. For example, when I was the Executive Director of ALA's Medical Section, 
the American Thoracic Society, we were encouraged to take leadership in establishing 
minimum epidemiological lung research standards via an NIH contract. Other mutually 
beneficial projects that have been carried out include model chronic lung disease 
education programs to be conducted by black lung clinics, respiratory medical device 
standards, tuberculosis therapy follow-up studies, among others. 

These proposed new restrictions would impact upon larger organizations such as 
ALA, but they would make for an impossible situation for the small nonprofit health 
groups. Those agencies such as the National Society for Autistic Children which 
has only seven full-time staff members provide services of critical importance to 
the public plus an invaluable insight in the development of health care policies. 
That Society is currently the recipient of a special education grant of $100,000 
that permits working through universities to train teachers on the best ways to 
teach autistic children. Please bear in mind that without such instruction, 95% of 
the autistic adults end up in institutions and have health care costs two to three 
times individuals trained to cope. Why should the Autistic Society's overall 
operations be made needlessly complex or its public policy voice muted? What would 
the government achieve and at what cost? 

In the final analysis, the OMB proposals are essentially a matter of 
bureaucratic overkill on what is perceived as a major problem but is not. The 
restrictions would go far beyond those limitations currently imposed by Congress, 
program statutes or the tax laws and would apply to many non-federally funded 
activities of organizations like ALA. However it is worded or reworded, a further 
OMB limitation on public advocacy would confront established and venerated 
charitable agencies with a choice between two undesirable results: forfeit 
urgently needed funds or cease to exercise our traditional rights as citizens to 
communicate and participate in the lawmaking process. 



100 

Mr. Brooks. Thank you very much and I would like to ask you 
just one question. Do you foresee a danger that this OMB proposal 
could give governmental agencies the power to pick and choose the 
views that they hear on pending governmental decisions by solicit- 
ing opinions only from friendly organizations? 

Mr. Weymueller. Very much so, sir. 

Mr. Brooks. Mr. Horton? 

Mr. Horton. Mr. Chairman, thank you. Mr. Weymueller, I think 
you have an excellent statement. It is characteristic of all the other 
statements — I have been trying to read through them up here this 
morning, and I have been through a number of them. But it is typi- 
cal of what is being said by organizations, conscientious organiza- 
tions, that have tried to do their job, especially in the volunteer 
field. 

As you heard earlier — I am concerned about the allocation of lob- 
bying costs of particularly some of these big contracts like the one 
that was referred to earlier in the Department of Defense. What 
went on there is wrong. I think that there ought to be somebody 
stepping on people's toes when they do that, and holding their feet 
to the fire, and exacting out of them one way or the other, either 
through the Inspector General process, or through litigation, to 
make certain that they don't do that type of thing. 

But I think yours is a very typical statement of what I am sure 
we are going to be hearing this morning and this afternoon from 
the nonprofit volunteer organizations that are trying to do a job in 
this country that makes the difference in our ability to accomplish 
things in the fields that are not provided for by government or by 
business and so forth. 

Unfortunately, the people from OMB aren't here. I have a whole 
stack of this testimony, and I am going to ask my staff to send a 
letter which I will sign to Mr. Wright at OMB, enclosing copies of 
all this testimony, and particularly yours. I will ask that that 
person who is going to be working on that revision in the next 2 
weeks to take a moment to read through some of these so that the 
people at OMB can be impressed that this is not just a group of 
unconscientious people complaining, but that these are sincere 
people who are very, very much concerned about the implications 
of what this proposed circular revision can do. I was impressed that 
the others who have testified, in particular the Comptroller Gener- 
al, stated that there really isn't that much need for this, that there 
is not that big a problem of using Federal funds for lobbying pur- 
poses. I am going to ask that they take a hard look at this type of 
testimony. 

Thank you very much, it is excellent testimony. 

Mr. Brooks. I want to thank you very much for your testimony 
and for coming down here and being with us. 

Mr. Weymueller. Thank you, sir. 

Mr. Brooks. We have Florence R. Rubin of Newton, Mass., as 
our next witness. She represents the League of Women Voters of 
the United States where she is serving her fourth term as a 
member of the National Board of Directors. She is a political con- 
sultant with wide experience in State and local government, a 
former chair of the Massachusetts Judicial Conduct Commission, 
and was a leader in the successful campaign to reorganize the Mas- 



101 

sachusetts courts. She now serves on the Board of Directors of the 
Massachusetts Council for Public Justice. 

We welcome you here today. You may summarize your remarks 
and put your whole statement in the record, if you would like. We 
are very pleased to have you here. 

STATEMENT OF FLORENCE RUBIN, DIRECTOR, LEAGUE OF 

WOMEN VOTERS 

Ms. Rubin. Thank you, Mr. Chairman. I would like to request 
that the complete statement be incorporated in the record. 

Mr. Brooks. Without objection. 

Ms. Rubin. Mr. Chairman, and members of the subcommittee, 
the League of Women Voters of the United States is a nonpartisan 
citizen organization with members in all 50 States as well as in the 
District of Columbia, Puerto Rico, and the Virgin Islands. The 
league is concerned about the disastrous effect of OMB's proposal. 
We are concerned about the effect this would have on the partici- 
pation of nonprofit organizations in the political process. We be- 
lieve that OMB is having difficulty in formulating the changes that 
it is proposing because those changes are basically unsound, unnec- 
essary and possibly unconstitutional. They strike at the heart of 
two basic concepts of government; the right of the public including 
nonprofit organizations to have full access to the governmental 
process and the need of Government officials for information on 
which to base public policy decisions. 

Further, we believe that the language proposed by OMB in deal- 
ing with political advocacy is overly broad, goes beyond 
congressional intent, threatens protected first amendment rights, 
and is generally unwise. 

I can't help but comment that the effort by OMB appears to be 
out of line with the announced policy of the administration to de- 
crease the regulatory activities of Government. OMB's action 
would extend the regulatory power of that agency to a new and un- 
precedented area. I might also endorse the comments that were 
made by previous speakers about the inconsistency of such a pro- 
posal in light of the administration's desire to form an effective 
compact between Government and the private sector in the deliv- 
ery of services. 

Our basic concerns can be characterized as follows: 

One, we believe that OMB lacks the statutory authority to pro- 
mulgate a directive of this nature. We know of no law that Con- 
gress has passed of general applicability authorizing such a broad 
regulatory reach into the realm of political expression; and two, 
OMB has failed to bring forth convincing evidence of any need for 
this amendment to Circular A-122. All of us heard the Comptroller 
say this morning that there were no major abuses. The change 
would represent a radical departure from accepted practices and 
there does not seem to be a convincing need for such a change. 

Three, we are deeply concerned about the impact of the proposed 
change on the exercise of rights protected by the first amendment 
and on the political process. We are particularly concerned about 
OMB's expanded definition of political advocacy. To OMB political 
advocacy would include contact with all levels of government and 



102 

efforts to influence public opinion as well. The very activities OMB 
wishes to restrict, I understand, have been recognized by the Su- 
preme Court as forms of political expression entitled to the full 
protection of the first amendment. 

In OMB's expanded definition of political action, we would have 
concerns about litigation that some nonprofit organizations are in- 
volved with now when they file amicus briefs and we are also con- 
cerned about the broad reach of OMB's proposal in including as po- 
litical advocacy attempting to influence governmental decisions 
through communications with Government officials and employees. 

This seems to be so open ended a definition of governmental deci- 
sions that it would encompass virtually every kind of action possi- 
ble by a governmental body. It is conceivable that this aspect of po- 
litical advocacy could be construed to include most of the things 
that a nonprofit organization might do in its relationship with any 
branch or level of government. It is also apparent that because of 
its vagueness, the proposal, if implemented, would require a great- 
ly augmented OMB staff to enforce and interpret it. 

I was interested this morning in the questions that were posed to 
OMB about whether they had considered the fiscal impact of these 
proposed changes, and clearly they had not considered that impact 
on the nonprofit organizations nor, I dare say, on OMB itself since 
it would have a great deal of difficulty, I would imagine, in enforc- 
ing the provisions that were so vague and allowed so much discre- 
tion. 

There are a number of things that we feel are unclear in these 
proposed changes. For example, would OMB consider a publication 
produced for wide citizen use that contained a pro and con discus- 
sion of a contemporary political issue to be an attempt to affect the 
opinions of the general public or any segment thereof in order to 
influence a governmental decision? 

And how would OMB treat a conference involving an array of 
speakers with a variety of views on a public policy issue? We are 
really deeply concerned that the net effect of this broad brush ap- 
proach, and the vagueness that permeates the descriptions of politi- 
cal advocacy, would force nonprofits to be really afraid to do any of 
the normal activities that might be considered political advocacy. 

And we are also concerned about the unjustifiable burdens it im- 
poses by requiring separate staff, separate offices, separate equip- 
ment. While the League of Women Voters of the United States is 
not a Federal grantee or contractor, we do share office space facili- 
ties and equipment with what OMB might consider an affiliated or- 
ganization, the League of Women Voters Education Fund. The Edu- 
cation Fund is a charitable trust with 501(c)(3) status and it has in 
the past provided services to the Government through Federal 
grants and contracts. Since the LWVUS is a political advocacy or- 
ganization, these changes might affect the relationship between the 
LWVUS and the LWVEF and force separate office space, and that 
would be a financial hardship for both organizations. 

To make matters worse, the OMB proposal does not really clear- 
ly identify what it means by affiliated organizations. It is quite 
clear that if these changes were to go into effect, only the organiza- 
tions that were large and well financed would be able to fulfill 



103 

their role in the contracts as well as exercise their first amend- 
ment rights. 

We are also concerned about the impact on the public if this pro- 
posal is implemented and its chilling effect on nonprofit organiza- 
tions, preventing them from performing the wide range of func- 
tions and activities that play such an important role in the demo- 
cratic process. 

There was a case in West Virginia that the league was involved 
in as an amicus curiae and I just wish to quote a small part of the 
decision: 

To prohibit robust debate on the questions [of that suit which were environmental 
issues] would deprive society of the benefit of its collective thinking and in the proc- 
ess destroy the free exchange of ideas which is the adhesive of our democracy. 

Mr. Chairman, in concluding, I really do wish to thank you for 
holding hearings on this important subject by bringing the atten- 
tion of Members of Congress to the problems created by OMB's pro- 
posed change in Circular A- 122. We hope that the change will not 
only be sent for further review as OMB indicated this morning, but 
that it will be removed altogether. We really do not want a revised 
version of this proposal; we v/ould hope that it would be stopped 
altogether so that we can prevent OMB from really demolishing 
the legitimate and important role played by hundreds of nonprofit 
organizations in the governmental decisionmaking process. Thank 
you, Mr. Chairman. 

[Ms. Rubin's prepared statement follows:] 



104 

TESTIMONY BEFORE THE 
SUBCOMMITTEE ON LEGISLATION AND NATIONAL SECURITY 

by 

FLORENCE RUBIN, DIRECTOR 

LEAGUE OF WOMEN VOTERS OF THE UNITED STATES 

Mr. Chairman, members of the Subcommittee, I am Florence Rubin, a member 
of the Board of Directors of the League of Women Voters of the United 
States. I am here to express the League's concern about the changes 
that 0MB proposes to make in Circular A-122, "Cost Principles for Non- 
profit Organizations," that would establish special provisions for costs 
related to "political advocacy." 

The League of Women Voters of the United States is a nonpartisan citizen 
organization with members in all 50 states as well as the District of 

Columbia, Puerto Rico and the Virgin Islands. Ours is an organization 
whose very existence is based on citizen participation in government. 

In all its efforts, the League of Women Voters' stock in trade is citi- 
zen access to governmental processes and governmental decision making. 
Believing that an informed citizenry is an essential part of a democratic 
system, the League seeks to inform citizens about how government works 
and to motivate them to become involved and informed participants in the 
democratic process. Therefore, we express our concerns to you today 
about 0MB 's proposed changes that we believe would adversely affect the 
democratic processes whose functioning we believe is necessary for govern- 
ment to operate properly. 



105 



We are frankly appalled at the attempt by 0MB to effect changes in Circu- 
lar A-122 that would have an adverse impact on the political process. 
The changes proposed are ill-advised, unsound and possibly unconstitu- 
tional. We believe that they strike at the heart of two basic concepts 
of government: (1) the right of the public (including nonprofit organiza- 
tions) to have full access to the governmental process; and (2) the need 
of government officials for information on which to make sound and informed 
decisions. The proposed changes would disallow certain costs related to 
federal grants and contracts, and seek to impose a wall of separation 
between government grant activity and organizational activity that may in- 
clude what 0MB defines as "political advocacy." We believe that the lang- 
uage proposed by 0MB is overly broad, goes beyond congressional intent, 
threatens protected First Amendment activities and is generally unwise. 

Further, this effort by 0MB appears to be out of line with the announced 
policy of the Administration to decrease the regulatory activities of 
government. 0MB' s action would extend the regulatory power of that agency 
to a new and unprecedented area. 

We maintain that the 0MB language poses a serious threat to legitimate 
activities that the League has sought to encourage since its inception 
in 1920: the ability of citizens and organizations to communciate with 
and participate in all aspects of government. We believe that the abil- 
ity to influence government decision making is an essential and appropri- 
ate aspect of the democratic process. Since the proposed 0MB directive 
is targeted to nonprofit organizations, we assume the greatest effect 
would be on public charities tax exempt under 501(c)(3) of the Internal 
Revenue Code, and on smaller. nonprofits. A very heavy impact would be 
borne by these organizations because they would be restricted from parti- 
cipating in the democratic process or they would have to forego seeking 
government grants and contracts. Specifically, we think a 501(c)(3) 
affiliated with another organization, or a small nonprofit could not 
afford to establish physically separate facilities and staff for 

activities 0MB might possibly construe as political advocacy. 
5 



106 



Our basic concerns can be characterized as follows: 

1. We believe that OMB lacks the statutory authority to promulgate a 
directive of this nature. We know of no law that Congress has passed 
of general applicability authorizing such a broad regulatory reach 
into the realm of political expression. While OMB cites no particular 
legislative authority for its proposal, it seems clear that OMB's 
proposed restrictions also go well beyond any that Congress has imposed 
on particular federal funding programs. Further, OMB's own explanation 
accompanying the proposal confirms its intent to go beyond the restric- 
tions on influencing legislation that Congress has imposed on all 
public charities under Section 501(c)(3) of the Internal Revenue Code. 

2. OMB has failed to bring forth evidence of any need for this amendment 
to Circular A-122. The change would represent a radical departure from 
accepted accounting practice, and indeed the general principles of 
Circular A-122 itself. The OMB proposal would operate in a manner 
totally at odds with the purpose of Circular A-122 as articulated 

by OMB itself, and that is to "provide that the federal government 
bear its fair share of costs except where restricted or prohibited 
by law." There is no question that the government has a duty to 
prevent the use of federal funds for purposes not related to a specific 
grant or contract, or for improper purposes as defined by specific 
statutory limitations. That governmental need can be met by existing 
cost accounting practices under Circular A-122. When an agency 
proposes a rule that represents a radical change from existing rules, 
without specific statutory authority and with no demonstrated need for 
the change, it seems very clear that the agency is acting arbitrarily, 
capriciously, and unlawfully. Such is the case with this proposal. 

3. We are deeply concerned about the implications of the proposed change 
for the exercise of rights protected by the First Amendment and for 



107 



the political process. Congress has shown a careful respect for the 
expression of political views, and for the ability of citizens and 
organizations to be informed about and to comment on the government 
decision making process. It would be a travesty for 0MB to ride 
roughshod over those rights that Congress and the Courts have been 
careful to protect. As an example of 0MB' s peculiar reasoning, we 
point to its expanded definition of "political advocacy." To 0MB 
political advocacy would include contact with all levels of government, 
and efforts to influence public opinion as well. The Supreme Court 
has recognized the very activities 0MB wishes to restrict as forms of 
political expression, entitled to the full protection of the First 
Amendment. 

Let me elaborate on our concerns about OMB's definition of political 
advocacy. 

As I have noted, many of the nonprofit organizations that perform services 
under government grants and contracts have tax-exempt status under Section 
501(c)(3) of the Internal Revenue Code. Statutory restrictions limit the 
amount of effort or resources that these organizations can devote to 
influencing legislation, and prohibit these organizations from engaging 
in any election-related partisan political activities. 

0MB has stated explicitly in the Federal Register that language relating 
to political advocacy is intended to go beyond restrictions imposed by 
Congress. 0MB -- with its definition of "political advocacy" -- has 
attempted to create by fiat restrictions on forms of political expression 
undeniably entitled to First Amendment protection. 



20-644 O— 83 8 



108 



A prime example is Section 1 . b. (5) , which defines one aspect of political 

advocacy as: 

participating in or contributing to the expenses of 
litigation other than litigation in which the organization 
is a party with standing to sue or defend on its own 
behalf. 

The Supreme Court recognized in NAACP v. Button , 371 U.S. 415 (1963), 

the decision 0MB misconstrued, that access to courts -- in that case for 

the purpose of protecting civil rights -- is a form of political expression 

entitled to Constitutional protection. Apparently, nonprofit organizations 

that file amicus briefs, represent others in civil rights or public interest 

litigation, or provide financial support for such litigation -- all 

permissible activities for 501(c)(3) organizations — would still be 

deemed by 0MB to be engaging in "political advocacy." It would seem that 

nonprofit organizations could perform services under federal grants and 

contracts only by foregoing a legally recognized right to use the court 

system. 

The broad reach of 0MB' s proposal is also apparent in Section 1 . b. (4) , 
which includes as pol itical advocacy "attempting to influence governmental 
decisions through communications with government officials and employees." 
The separate definition of "governmental decisions" appears so open- 
ended as to encompass virtually every kind of action possible by a gov- 
ernmental body. 

Another flaw in 0MB' s proposal is evident in this section: the vagueness 
of the language makes it impossible to determine the proposal's limits. 
Nowhere in the proposal is there a definition of "influencing," "commu- 
nications," or "attempting." The vagueness of this section would leave 
all protentially covered organizations to wonder, without any guidance, 
whether they were engaging in political advocacy if they: 

--submitted written comments on proposed regulations (1-frtfe- thi s 
amendment to Circular A- 122); 



109 



--sent staff to meet with federal officials to discuss whether an 
agency was developing any regulatory changes, even if the meeting 
was used to collect information needed to carry out a federally- 
funded project; 

--sent government officials the results of a study or research project 
bearing on a currently "hot" topic in public policy (assuming the 
results had not been requested in writing, the next question would 
be whether, in order to qualify as an exception to political advocacy 
under Section l.c.(l), the distribution was "not primarily designated 
to influence. . .any governmental decision"). 

It is conceivable that this aspect of "political advocacy" could be construed 
by 0MB to include virtually every kind of contact a nonprofit organization 
might have with any branch or level of government in the course of carrying 
out any of its ongoing activities. 

Not only that -- it is apparent that because of its vagueness, the proposal, 
if implemented, would require a greatly augmented 0MB staff to enforce it 
and interpret it. Further, it would place in OMB's hands a great deal of 
discretion that would enable 0MB to enforce the provisions heavily in one 
area or against one group and differently in another situation. 

Look also at the enormous potential hidden behind the vague language of 
Section l.b.(3), which defines as political advocacy, "attempting to 
influence governmental decisions through an attempt to affect the opinions 
of the general public or any segment thereof." 

For example, would 0MB consider a publication produced for wide citizen 
use that contained a pro and con discussion of a contemporary political 
issue to be "an attempt to affect the opinions of the general public or 
any segment thereof" in order to influence a governmental decision? Is 
promoting public understanding and discussion of an issue an attempt to 
affect the opinions of the general public in order to influence government 
decisions? 



110 



How would 0MB treat a conference, involving an array of speakers with a 
variety of views on an important public policy issue? Are a nonprofit 
organization's fundraising solicitations -- such as a direct mail appeal 
describing the work of the organization -- within the definition of 
political advocacy? They are undeniably addressed to the general public, 
and, if they are effective, they affect the opinions of those who receive 
them. 

As a final illustration of this problem of vagueness, I turn to Section 
l.b.(6), under which contributions of any kind to another organization that 
engages in "political advocacy" are themselves a form of "political 
advocacy." How much political advocacy the recipient organization must 
engage in to trigger this section is not possible to discern from the 
proposal's language. Again, how would 0MB define a contribution? Would 
0MB go so far as to include subscriptions to the magazines of those org- 
anizations that treat purchasing a subscription as a means of becoming 
a member? 

We are deeply concerned that the net effect of this broad brush approach -- 
and the vagueness that permeates the descriptions of "political advocacy" -- 
would be to leave nonprofit organizations afraid that any of their normal 
activities could be considered by 0MB to constitute "political advocacy." 

Certainly there is nothing in the proposal itself to prevent that result. 

While this proposal is objectionable because of its impermissible intrusion 
into public access to government decision making, the unjustifiable burdens 
it imposes compound its negative effects. 

0MB proposes not only to deny federal reimbursement for costs of those 
activities deemed to be "political advocacy" that are carried out as part 
of a federal project; it also proposes to deny federal reimbursement for 
otherwise allowable costs if an organization engages in "political advocacy" 
that is financed with nonfederal funds. 



Ill 



For example, no salary costs for an individual would be allowable if that 
individual, during hours other than those devoted to a federal grant or 
contract, did any work 0MB views as political advocacy. Similarly, no 
costs could be charged to federal projects for equipment or items (whatever 
that means) that, in addition to being used for the federal project, were 
used -- even once -- for an activity 0MB determined to fall within the 
realm of political advocacy. 

The provision about allowable space costs also imposes unacceptable burdens 
on organizations. The 0MB proposal states that an unallowable cost would 
be "building or office space in which more than 5% of the usable space 
occupied by the organization or an affiliated organization is devoted to 
activities constituting political advocacy." [Section l.f.(2)(a)] We 
offer our own situation as an example. While the League of Women Voters 
of the United States is not a federal grantee or contractor, we share 
office space, facilities and equipment with what 0MB might consider an 
affiliated organization, the League of Women Voters Education Fund. The 
Education Fund, which is a charitable trust with 501(c)(3) status, has in 
the past provided services to the government through federal grants and 
contracts. Since the LWVUS is a political advocacy organization, the 
imposition of the proposed 0MB changes might force the physical separation 
of the LWVUS and the LWVEF. We submit to you that such a separation would 
be a financial hardship on both organizations. As the arrangement stands 
now, the expense of space is allocated proportionally between the two 
organizations. 

Further, nowhere in the 0MB proposal is the term "affiliated organization" 
defined. The failure to provide such a definition leaves unanswered a 
very basic question — how distant a connection to another organization's 
"political advocacy" would satisfy 0MB that the nonprofit contractor is 
not tainted? 



112 



When one looks at the potential financial penalties -- the disallowance 
of federal reimbursement of any grantee staff costs, equipment or materials 
costs, or space costs, for organizations engaging in "political advocacy," 
one concludes that these penalties are very harsh indeed, out of proportion 
to the purported evil that 0MB wishes to stamp out. Practically speaking, 
in order to be sure not to run afoul of the penalties 0MB proposes, most 
nonprofits would be forced to set up a separate structure -- separate 
location, separate facilities, and separate staff and management structure 
to provide services under federal grants and contracts. 

The reality is that for many nonprofit organizations, particularly those 
that are small and without large financial reserves, the expense involved in 
creating and maintaining such a separate entity would be prohibitive. 
For those organizations the choice would become whether or not to undertake 
federal projects. And, that choice would also mean the choice of whether 
to refrain from any activities that might be deemed "political advocacy." 
Only those organizations with substantial financial resources will be able 
both to undertake federal projects and to continue to exercise their First 
Amendment rights. Certainly that result is not acceptable. 

There are other potential effects of this proposal as well. The broadness 
of the 0MB language leads us to think that 0MB could construe as unallowable 
activities for 501(c)(3)s that are also federal grantees any of their 
usual, ongoing functions: citizen education, litigation, submitted comments 
to agencies, and contacts with other organizations. Such nonprofit organ- 
izations would therefore be forced into the choice that you, Mr. Chairman, 
noted in your press release between performing government-funded civic 
and public services or participating in the political process. Furthermore, 
we are concerned that if 0MB gets a stamp of approval for this Pandora's 
box definition of "political advocacy," there may spring forward a whole 
second generation of restrictions on tax-exempt organizations, even for 
those that are not in a position to provide services to the federal 
government under grants or contracts. 



113 



Finally, we must address the impact on the public if this proposal is 
implemented and its chilling effect discourages nonprofit organizations 
from performing the wide range of functions and activities that play such 
an important role in the democratic process. An eminent statement of the 
importance of this public process was made recently in a state court 
opinion interpreting the First Amendment. 

The case arose in West Virginia; the League was involved as an amicus 

curiae . In granting a writ to prohibit a libel suit by a coal company 

against environmentalists who were reporting water pollution to federal 

agencies, Justice McGraw of the Virginia Supreme Court of Appeals spoke 

most eloquently about the very rights at stake in the proposal we consider 

today: 

we shudder to think of the chill our ruling would have 
on the exercise of First Amendment rights were we to allow 
this lawsuit to proceed. The cost to society in terms [of 
the] threat to our liberty and freedom is beyond calculation. 
This cost would be especially high were we to prohibit the 
free exchange of ideas on such pressing social matters as 
surface mining. Surface mining, and energy development 
generally, are matters of great public concern. Competing 
social and economic interests are at stake. To prohibit 
robust debate on these questions would deprive society 
of the benefit of its collective thinking and, in the 
process, destroy the free exchange of ideas which is the 
adhesive of our democracy. [ Webb v. Fury , West Virginia 
Supreme Court of Appeals (1981), Slip Opinion, p. 32] 



Conclusion 

Mr. Chairman, in concluding my remarks, I want to thank you for holding 
hearings on this important subject. By bringing the attention of members 
of Congress to this problem, this committee can be a critical force in 
seeing to it that these unwise changes do not go into effect. 



114 



I wish to close by returning to some of the broader considerations that 
must be discussed. The proposed changes seem highly misguided and even 
dangerous. We think they are bad policy. Essentially, we believe the 
changes, if instituted, would not only restrict legitimate rights of 
nonprofit groups, we also believe the government itself would suffer. 
We are convinced that necessary information would be shut off from government 
officials about the very programs they implement and oversee. Organizations 
most knowledgeable about particular problems would be constrained from 
commenting to governmental officials, if the organization had a federal 
grant. Further, the public will suffer if the wide-ranging, robust public 
debate on issues that the First Amendment assumes and protects is diminished. 
Organizations that held federal grants would be unable to run litigation 
programs without endangering their grants, would be unable to participate 
in government decision making, could not seek to influence public opinion. 
All these activities are legitimate and necessary for the democratic 
process to work. 

Further, the proposed changes would cost the government money. Leaving 
aside the costs of monitoring compliance with the amended circular, the 
government grants would in the future have to fund wholly separate staffs 
for a project, for example. Entire Xerox machines would have to be leased 
for projects, also, facilities and equipment, to abide by 0MB' s concern 
over shared equipment and shared facilities. One could go on with examples. 
The point is that such excessive restrictions are foolish, and would be 
costly. 

In this current effort, 0MB appears to have set itself up as an institu- 
tion not bound by constitutional guarantees and seeking to exercise powers 
far beyond its purpose. OMB's changes would impinge heavily on the 
activities of nonprofit organizations -- a vital nongovernmental sector 
of American 1 ife. 



115 



As an organization committed to an informed citizenry that participates in 
the political process, the League of Women Voters opposes the 0MB changes 
that would unconstitutionally and unwisely burden that process with artificial 
walls of separation for political expression. At a time when the Admin- 
istration is calling for increased volunteer activity and a strengthened 
public-private partnership, the changes 0MB proposes would truly restrict 
the ability of nonprofit organizations to engage in such a cooperative 
effort. 

We urge that Congress do all in its power to have 0MB withdraw and 
abandon the proposed changes to Circular A-122, which potentially affect 
hundreds of nonprofit organizations that have a rightful role to play in 
governmental decision making processes. In addition, we would support 
legislation to prohibit 0MB from effecting these proposed changes. 

Thank you for the opportunity to make this statement. 



116 

Mr. Brooks. Thank you. I now have one question. 

Would your organization be able to continue in operation with its 
present structure under this OMB proposal? 

Ms. Rubin. Our organization with its affiliation with the League 
of Women Voters Education Fund would have great difficulty in 
continuing with this present structure because of the tremendous 
burden of additional expense that would be required to maintain 
the two organizations. 

Mr. Brooks. I want to thank you very much. I appreciate your 
coming down and being with us today, and making a significant 
contribution to these hearings. 

Ms. Rubin. Thank you. 

Mr. Brooks. Thank you very much. 

Our next witness is Maudine R. Cooper, vice president of the Na- 
tional Urban League, where she has worked since 1973. She holds a 
B.A. degree, a law degree from Howard University, and has re- 
ceived several awards for her achievements and outstanding contri- 
butions to the community. 

Ms. Cooper, we would accept your full statement for the record if 
you would summarize your statement. We are delighted to have 
you here and you can proceed. 

STATEMENT OF MAUDINE R. COOPER, VICE PRESIDENT, 
NATIONAL URBAN LEAGUE 

Ms. Cooper. Thank you, Mr. Chairman. 

I would like to echo my support for those who have preceded me 
but to also add some additional comments on behalf of the Nation- 
al Urban League. 

First of all, again, as my predecessors have indicated, we want to 
thank you for bringing this matter to the attention of not only the 
Congressmen who will know of these hearings, but also of the press 
and the media whom we have also been in close contact with, 
trying to get our story out to the public. 

Our concerns in reference to this OMB Circular A-122 are many 
and diverse and of course again, have been echoed in large part by 
some of my predecessors. As a civil rights advocate, however, we 
are concerned about the first amendment and indeed the equal pro- 
tection implications of the rule. As service delivery agents we are 
worried about the inevitable damage to our ability to continue to 
provide for the needs of our constituents. As a grant recipient sub- 
ject to the constraints of section 501(c)(3) of the Internal Revenue 
Code, we are puzzled by what has prompted this drastic and funda- 
mental change in how we operate. And as a nonprofit organization, 
we are baffled at the seeming contradiction between the adminis- 
tration's professed desire to encourage the voluntary sector and 
this effort to thwart any capability we might have had to respond 
to that charge. And, certainly we share the generic concerns of all 
those that will be affected by this ruling, both directly and indirect- 
ly, such as the legal authority for the amendment, the inevitable 
increase in paperwork, and the sure loss of our cost effectiveness. 

We are indeed encouraged that OMB recognizes the gravity of 
the proposed amendments to Circular A-122 and has chosen to 
extend the comment period and to identify certain problem areas. 



117 

However, that does not provide solace to us and to many other na- 
tional organizations. For example, and much of this information 
comes from the press release that was just issued last week: OMB 
still maintains that the present amendments will provide "uniform 
enforceable rules." We would suggest to you that such enforceabil- 
ity will require far more resources than are presently available as 
each Government contracting officer attempts to examine percent- 
age utilization of equipment and monitoring of activities of other 
staff members who were paid part time by Government contracts. 
Further OMB initially failed to inform us of the basis of their con- 
cerns. Now, however, they indicate in the news release that there 
has been "significant instances of improper diversion of Federal 
funds for political advocacy." And of course much of that has been 
refuted by this morning's testimony. 

Personally, I have not read that study that was discussed but I 
would suggest to you that on the basis of at least the Independent 
Sector's reading of that study that OMB is clearly on the wrong 
track and they ought to once again go back to, as you have said, to 
the drawing board on this circular. Certainly the present amend- 
ments do not pretend to address interpretations that OMB has thus 
far given you nor should it, since the United States Code provides 
clear penalities where misuse, misappropriation, misallocation, 
commingling, et cetera, of Federal funds are concerned. To further 
look at that quoted — I should say misquoted Comptroller's study — 
the call for guidance in relation to the uniform cost principles does 
not necessarily mean that an overly broad definition of "political 
advocacy" is the appropriate route. Again that was underscored by 
the Comptroller. The apparent key to OMB's concerns as publicly 
articulated is the subsidization of lobbying by the Federal Govern- 
ment. While we do not accept the notion that the amounts and 
levels of subsidization is sufficient to warrant this meat-ax ap- 
proach to cost allocations, let's for a moment just look at the sub- 
stance of that notion and let us further assume that such subsidiza- 
tion does in fact take place. Is it OMB's position therefore, that 
subsidization by the Federal Government per se is wrong? Is it 
OMB's position that subsidization of lobbying and any subsequent 
support of ideologies to which some segments of the American 
public object is wrong? 

On this latter point, I might add that there would be few Federal 
dollars spent on anything if there had to be a national vote on 
every program area which the Federal Government now views as a 
national priority. We would probably have limited military expend- 
iture and aid to foreign governments. Chrysler Corp. would prob- 
ably be a memory, and product price supports would be a past 
practice. 

Additionally, the release does indicate that contracts now in 
force would not be affected. However, if final publication of the reg- 
ulations is proposed for the summer, it seems unfair again and 
overly burdensome for nonprofit groups to become prepared to ad- 
dress these new requirements by October 1 for new contracting ac- 
tivity. 

Finally, the release does suggest to us that OMB is really prepar- 
ing to provide substantial employment to a large number of unem- 



118 

ployed lawyers and a tremendous increase in the caseloads for the 
presently overworked judicial system. 

Volumes will emanate from judicial declarations of what consti- 
tutes "standard marketing activities" or "substantial equipment 
usage;" and whether an alleged violation was inadvertent or tech- 
nical. But beyond the present proposed changes, there are still a 
number of unanswered questions. For example, when does a Feder- 
al contract dollar cease to carry that characteristic and become 
some other kind of dollar excluded from the requirements of the 
circular? Why the unequal treatment between Federal dollars flow- 
ing between nonprofits and the Federal Government and dollars 
flowing to State and local governments from the Federal Govern- 
ment, and more importantly, their subcontactors and/or subgran- 
tees? What this seems to suggest to us is that the primary target of 
these regulations are indeed national organizations. 

The National Urban League, therefore, strongly urges this Con- 
gress, and indeed this committee, to recommend to this Congress to 
use all of the resources at its disposal to effectuate the withdrawal 
of these guidelines. Thank you. 

[Ms. Cooper's prepared statement follows:] 



119 



Testimony of- •• •. . ••';■ 

MAUDINE R. COOPER 

Vice President for Washington Operations 

NATIONAL URBAN LEAGUE, INC. 

Before the 

House Committee on Government Operations 

Subcommittee on Legislation and National Security 

on 

OMB PROPOSED CIRCULAR A-122 

Room 2154 

Rayburn House Office Building 

Tuesday, March 1, 1983 



Good morning. I am Maudine R. Cooper, Vice President for Washington 
Operations of the National Urban League, My office serves as the 
principal representative and voice in Washington for our network of 
118 affiliates in 36 states and the District of Columbia. These local 
offices provide services to the poor and minority community as the 
primary means to achieve the Urban League ' s mandate to secure equal 
opportunities for the disadvantaged in all sectors of our society. 
We have also pursued this goal, since 1910, by seeking to bring about 
changes in government and social systems which produce disparities 
among groups of Americans. 

I am particularly appreciative of this opportunity to appear be- 
fore the Subcommittee today because our concerns about the Office of 
Management and Budget's (OMB) proposed revision to Circular A-122, 
"Cost Principles for Nonprofit Organizations," are many and diverse. 
As civil rights advocates, we are concerned about the First Amendment 



120 



. and equal protection implications of the rule. As service delivery 
agents, we are worried about the inevitable damage to our ability to 
continue to provide for the needs of the disadvantaged. As a grant 
recipient subject. to the constraints of Section 501(c)(3) of the 
Internal Revenue Code, we are puzzled by what has prompted this drastic 
and fundamental change in how we operate. And as a nonprofit organi- 
zation, we are baffled at the seeming contradiction between the 
Administration's professed desire to encourage the voluntary sector, 
and this effort to thwart any capability we might have had to respond 
to that charge. And certainly we share the generic concerns of all 
those that will be affected by this ruling, both directly and indirectly, 
such as the legal authority for the amendment, the inevitable increase 
in paperwork, and the sure loss of cost-effectiveness. While we have 
recently learned that 0MB intends to rewrite the proposal 1 , our concerns 
are in no way assuaged. The agency has not specifically outlined which 
provisions it will refashion, nor what form these modifications will take. 
Nothing les.s than a $obal withdrawal can possibly correct a proposal that was 
so ill-conceived at the start, and- poses such serious constitutional 
threats in the future. 

Before I proceed any further, let me state as emphatically as I 
can: The National Urban League does not now, nor have we ever 
supported the use of federal money for political advocacy. We have al- 
ways understood and faithfully observed the political limitations- of 
the Internal Revenue Service (IRS) — much like government workers are 
constrained by the Hatch Act and your own employees are prohibited 



121 



from simultaneously working on your campaigns.' We have, asked for no • 
special treatment, simply a reasonable and workable framework that 
allows us to participate in the democratic process , foster the free flow 
of ideas, and assure that the voice of the politically impotent is 
heard. 

Yet with the publication of the proposed revision of Circular A-122, 
we are faced with a double barrel attack on these basic freedoms and 
goals. On the one hand, a definition of "political advocacy" has been 
proferred that is so overbroad as to forbid even the most innocuous 
activities, and on the other, a cost allocation system would be imposed 
that is so cumbersome that only the largest and most sophisticated con- 
tractors would be able to comply with its provisions. In effect no 
longer would we be able to communicate with our affiliates about pending 
changes in civil rights laws, we would not be able to communicate with 
members of the Congress about our experiences with programs you have 
asked us to implement, and we would not be able to pool costs with the 
government for copying machines, telephones, or office space. Both the 
means and techniques that we employ- to further the goal of equal opportu- 
nity would be banned. 

This extraordinary action is ostensibly justified by OMb' s con- 
tentions that there has been a "...diversion to political advocacy of 
federal funds. . ,r" ".. .an abuse of the system and an uneconomical, 
inefficient and inappropriate use of the public's resources," and that 
this has created "...the appearance of federal support for particular 
positions in public debate" and "...a distortion of the market place 
of ideas..." To suggest that these unproven and erroneous assumptions 



122 



are a sufficient and compelling rationale truly strains credulity. I 
am hard pressed to believe that if the Indianapolis Urban League, which 
has been involved in employment and training for 

concern about the proposed regulations governing the new Jobs Training 
Partnership Act, anyone would suggest that this represents the govern- 
ment's position or is considered lobbying. Rather their experience in 
the field undoubtedly improves the discussion and assures that diverse 
non-governmental input is considered. Again, the IRS does a credible 
job of ensuring the appropriate use of the public's money, granting the 

of 501(c) (3) status only to those charitable organizations 
fulfilling obligations that the government has deemed necessary, but is 
unable to deliver itself. In our case, that obligation is the delivery 
of needed services and definitely not "diversion" to so-called advocacy. 
As required by law, we keep federal grant monies separate from the con- 
tributions received for general operations. Very simply, we see no evidence 
that there is any need for the type of changes suggested by OMB. 
Present Law is Sufficient 

The OMB notice states ..."the diversion to political advocacy of 
federal funds, and of equipment procured with and personnel compensated 
by federal funds, 'is an abuse of the system and an uneconomical, 
inefficient and inappropriate use of the public's resources." (48 FR 
3346). rnat said ,. ^ notice proceeds ^ ^^ ^ ^^ ^^.^ 
the obvious implication being that the currently proposed amendment is 
the only effective and efficient way to stem this diversion. However, OMB 
has supplied no. evidence of the abuse upon which this proposal is allegedly 

based. Xt does not enlighten the affected class as to why current legislative 
Provisions axe in SU f f i cient in barring ^ ^ ^^ ^ ^ ^^ 



123 



advocacy activities. Indeed the notice implies that there are currently 
no means by which ta do this, and that is not the case. 

Congress has' passed specific legislation in instances where it 
wanted to restrict the very use of federal funds. Congressional appropria- 
tions for the Departments of Labor, Education, and Health and Human Services 
include language that prohibits the use of federal contract or grant 
funds "to pay the salary or expenses of any grant or contract recipient 
or agent acting for such recipient to engage in any activity designed to 
influence legislation or appropriations pending before Congress." (P.L. 
97-92, Sec. 101(a)(2) incorporating by reference H.R. 4560, 97th Congress; 
see also P.L. 96-536, Sec. 101(a)(4) and P.L. 96-123, Sec. 101(g) 
incorporating by reference H.R. 4389, 96th Congress; and P.L. 95-480, 
Sec. 407)* _...: 

Congress has set other statutory limits, such as the one placed 
on the Legal Services Corporation. The Legal Services Corporation Act, 
42 U.S.C. 2996 f (b)(1) and (b)(2), prohibits the use of grant and con- 
tract money received by the Legal Services. Corporation from being used for 
unauthorized lobbying and political activities. 

In addition, the Internal Revenue Service (IRS) reaches virtually 
all tax-exempt organizations that receive federal grants and contracts 
under Sec. 501(c)(3) of the Internal Revenue Code (IRC). Sec. 501(c)(3) 
prohibits tax exempt organizations from engaging in "substantial" lobbying 
activities; or permits them to elect to be subject to specific expendi- 
ture limits for such activities. Failure to comply with these pro- 

*Congressional Research Service, Library of Congress, "Analysis of Potential 
Legal Issues," February 18, 1982. 



20-644 0-83 9 



124 



visions ultimately results in the loss of tax exempt status. 

Congress has made it quite clear under what circumstances it wishes 
to restrict the use of federal funds. It has enacted no sweeping re- 
strictions such as the one proposed by OMB. 
0MB Authority 

Given the traditional oversight role that the IRS has played coupled 
with the constitutional separation of duties between the executive and legis- 
lative branches of government, there is certainly a question as to whether 
the OMB has the authority to issue such a revision. Certainly the agency 
has a role to play in the management, coordination, and efficiency of 
government grants and contracts, but this rule far exceeds these admini- 
strative goals. Without any demonstration of fraud or abuse, OMB has taken 
it upon itself to promulgate a rule that treads, on the field of legis- 
lating. The Congress, while recognizing the issue and taking steps to 
address it, has never seen fit to delegate its authority in this area 
to any executive agency. Further, the revision is so profound that it will 
generate fundamental changes, previously only enacted through statutes. 
In effect, OMB is dictating to the Congress who can and cannot provide 
you with the statistics, information, and experience gleaned from the imple- 
mentation of the programs and policies. you have enacted. We deliver the 
services, conduct the- studies, and obey the laws, yet this rule will prevent 
us from reporting back to you on their impact. It would seem to us that OMB 
has trespassed not only on the Congress' execlusive lawmaking power, but also 
on your oversight responsibilities and desire for feedback!; .information and 
advice. This apparent arrogation of authority is made even more egregious 
when the burden on First Amendment rights is examined. 



125 



First Amendment Rights 

Notwithstanding, OMB' s failure to illustrate abuse sufficient 
to warrant the currently proposed mammoth changes, its intention to do so 
is clearly unconstitutional and an irresponsible and irrational infringe- 
ment upon First Amendment rights. 

OMB states that the current proposal "will promote the First Amend- 
ment value that a person can freely speak, or refrain from speaking on 
political matters ." and that it "is designed to balance the First 
Amendment rights of federal grantees and contractors with the -legitimate 
governmental interests of ensuring that the government does not sub- 
sidize, directly or indirectly the political advocacy activities of 
private groups or institutions." The mere statement of that principle 
neither dictates the confines of this specific proposal nor deems its 
inherent restrictions legally and constitutionally sound. 

In order for the proposed amendment to pass constitutional muster, 
it must survive two exacting criteria. (1) The rule must forward a 
compelling governmental interest. Bates v. City of Little Rock, 361 
U.S. 516, 524 (1960), and (2) the rule must be drawn narrowly so as 
not to infringe upon protected rights, Buckley v. Valeo , 424 U.S. 1 
(1976) . This proposal survives neither test. 

The OMB notice states that its interest is in prohibiting the 
direct or indirect subsidizing of political advocacy activities with 
federal funds. Yet no such interest in making the sweeping restrictions 
as proposed has ever been expressed by Congress in any legislation or 
by the President in any Executive Order. Furthermore, the notice was 

issued with at the benefit of hearings and without any record of evidence 
or findings. 

The fact is that the Supreme Court has often objected to the 



126 



government's preclusion .of certain types of speech on the basis of its 
content. In First National Bank v. Bellotti , 435 U.S. 765 (1978), the 
Court recognized the importance of advocacy and stated that "... the 
fact that advocacy may persuade ... is hardly a reason to suppress it: 
the constitution protects expression which is eloquent no less than that 
which is unconvincing." Further, the Court has emphatically objected to 
discrimination against persuasive ageech by delcaring that "...above 
all else, the First Amendment means that government has no power to 
restricts expression because of its message, its ideas, its subject 
matter, or its content ."* More importantly, the Court and Congress have 
actually gone beyond protecting advocacy they have recognized and . 
encouraged- the need for- advocacy in the public interest. The Con^.. . 
gressional Research Service reports that "The Supreme Court has noted 
as a general concept our profound national commitment to the principles 
that debate on public issues should be uninhibited, robust, and wide 
open (New York Times v. Sullivan , 376 U.S. 254, 270 (1964)), and has 
specifically upheld legislation to use public money to facilitate and 
enlarge public discussion ... ( Buckley v. Valeo , supra, at 92-93). The 
legislation adopted by Congress which was upheld by the Court in that 
case provided for public tax revenues to be distributed to private 
political campaigns to directly subsidize the political advocacy of 
presidential candidates." 

0MB attempts to justify the government's interest in promulgating 
this rule by asserting that "This proposal will ensure, that taxpayers 
are not required, directly or indirectly, 'to contribute to the sup- 
port of an ideological cause (they) may oppose'." This rationale. 

Comments of ACLU, February 24, 1983, p. 9 



127 



however, is directly rebutted by Buckley v. Valeo , which affirmed the 
use of federal funds for the financing of presidential political 
campaigns. The Court in Buckley recognized that no congressional 
apportionments are enacted to the satisfaction of all taxpayers and 
..found the use of "public money to facilitate and enlarge public dis- 
cussion ... furthers, not abridges, ...First Amendment values." 424 
U.S. et. 92-93. 

In the absence of existing evidence of abuse and recognizing the 
legislative and judicial history of the treatment of advocacy, OMB 
has plainly failed to exhibit any compelling governmental interest in 
promulgating the present rule. 

The second test the rule must pass concerns its precision in 
dealing with the stated problem and the rule must be drawn narrowly 
to avoid reaching and infringing upon other protected rights. This 
test the rule fails miserably. 

Under current rules, a federal contract employee who spends 10% 
of his time on political advocacy activities could change the federal 
contract for 90% of his compensation as long as athe other 10% was paid 
for with non-government monies. OMB's approach not only affects that 
employee's political activities but also reaches his non-political 
activities; for OMB would disallow reimbursement for the 90% of the 
employee's time spent on authorized contract work. Given that 
appropriate legislation has already focused on the abuse of funds and 

that A-122 s present cost allocation system dictates that federal funds 
be used only for federally authorized activity, there is no justifi- 
cation whatsoever for the attempt to totally restrict the activities, 



128 * 



use of equipment, machinery or office space, simply because they are 
connected at some point in time with political advocacy. It is 
ludicrous to assume that an organization that delivers employment 
training services' for the government would not feel obligated in some 
fashion to advocate for the needs and benefits of the clients it 
served. 

On the other hand, OMB's treatment of the definition of political 
advocacy is equally egregious. It has defined the term so that it 
covers virtually every form of expression possible between a nonprofit 
organization and government. The First Amendment's requirement of 
narrow construction where governmental restrictions on speech are 
concerned demands that such restrictions not be crippled by a vagueness 
that necessarily leaves violation to the prejudicial determination of 
government officials. But that is exactly what this open ended 
definition of political advocacy constitutes. 

The combination of the overbroad application of the new cost- 
disallowance rule and the vagueness of the term political advocacy 
would necessarily restrict non-political activities; Neither .non-: 
prof its -nor government monitors would have sufficient guidelines to 
determine violative activity. The rule would encourage nonprofits 
to curb all activities for fear that some conversation would be deemed 
an "attempt to influence" a legislative body or that some employer's 
membership in an advocacy organization would be considered the re- 
sult of the employer's inducement. 

Finally, the rule if implemented would clearly and unfairly discrimi- 
nate against certain nonprofits. First, the proposal would require 



129 



that organizations' "separate their grant or contract activity from their 
political activity." While that appears a simple edict, it in essence 
requires that nonprofit organizations finance separate facilities, 
equipment, and staff. Not only is this duplication a direct contra- 
diction of the rules' stated preoccupation with "efficiency" of effort, 
but it also makes doubtful the alleged concern with a "balance" of in- 
dividual and governmental interests. Obviously, the larger and more 
financially secure organizations are in a better position to set up 
separate operations than smaller organizations. Thus it is actually 
the small nonprofits that will be forced to choose between service 
delivery and advocacy while organizations with the largest budgets 
are free to continue the exercise of First Amendment rights. 

Unlike the IRC, which governs the tax exempt status of federal 
contractors, this rule would deny organizations the opportunity of 
self-defense lobbying. Self-defense lobbying allows groups to engage 
in political advocacy for the purpose of defending their own existence, 
duties, or power. This right will be virtually foreclosed to those 
organizations that simply cannot afford a duplicate staff to undertake 
a defense. 

Second, the notice makes a clear distinction between organizations 
that advocate on their own initiative and those that advocate at the 
request of the government. The Amendment specifically excepts 
organizations that supply "advice or assistance" to the government 
pursuant to the government's request from the definition of "political 
advocacy." Consequently one set of groups will have the opportunity 
to influence the legislative process while those uninvited will ;have no 
forunw 



130 



The legal and administrative shortcomings of this proposal force 
us to question the sincerity and motivation of the authors of the 
circular. If their goal is truly the efficient and effective adminis- 
tration of federal funds, why require the duplication of effort it en- 
tails and structure such sweeping changes that would necessitate an 
infinitely more costly system of federal monitoring? If 0MB is actually 
concerned with the preservation and balance of individual First 

Amendment rights and governmental interests, why then do they 
blatantly propose to dictate the use of an organization's own funds and 
deny reimbursement for non-political activity? Why was there so little 
attention paid to existing congressional intent which in no way "■'... 
indicates a desire to so severely curtail the activities of nonprofits? 
Why did 0MB neglect to focus and fcaiibr its proposal narrowly enough - 
to avoid the constitutional problems of overbreadth and vagueness. 
Finally, what fairness is reflected in 0MB 's intention to clearly 
place political advocacy in the hands of financially robust organizations 
as opposed to those whose budgets will not withstand a total duplication 
of effort. 
Impact on Small Organizations 

By broadening the definition of advocacy, 0MB tramRj.es on daily 
and vital community outreach activities of the National Urban League 
on behalf of the poor and disadvantaged. A random survey of the 
League's community acitivities in its 118 affiliate cities reveals 
the breadth of the 0MB Circular and the jeopardy it holds for federal con- 
tract services needed by our constituents. 



131 



In EDUCATION. . . 

The Baltimore Urban League actively participates in the decision- 
making process of the Baltimore public school system — a system in 
which black comprise approximately 60 percent of the enrollment. The 
Baltimore Urban League is asked to join a search committee established 
to fill the position for a new school superintendent. Additionally, 
the Baltimore Urban League represents minority interest-through its 
membership on three key school board advisory panels on transportation, 
absenteism and school budgets. The 0MB Circular would prevent this 
land of activity. 

In EMPLOYMENT. . . 

The Nashville Urban League negotiates with a major area employer 
regarding the company's discriminatory hiring practices. Aided by 
media interviews and public awareness activities, and in conjunction 
with the local branch office of the Equal Employment Opportunity 
Commission, the League is able to improve minority access to the 
company's personnel divisions. The 0MB Circular would deter this 
kind of activity. 

In HOUSING. . . 

The Rochester Urban League responds to the growing charges of 
racial steering in real estate by launching its own investigations 
A.n extensive research report results, and is circulated widely in the 
local area. Public awareness efforts and coordination help lead to a 
voluntary agreement with the local Real Estate Board. The 0MB Circular 



132 



would deter this kind of activity. In Social Services, a region-wide 
effort is made to educate the minority community on the problem of 
teenage pregnancy. In conjunction with local churches, school and 
welfare systems, the Urban League begins to initiate a major awareness 
campaign at the grass roots level. The OMB Circular would deter this 
kind of activity. 

What these samples illustrate is how vitally the Urban League 
is involved in the day to day concerns of this nation's poor and 
minority population. Jeopardizing that network jeopardizes our 
country's commitment to the disadvantaged. 

What makes the Urban League's message important is that when 
the Urban League speaks; . it -speaks with experience — the experience 
we've gained from over 72 years of grass roots program operations. 
To quiet that voice is to waste a time-tested resource that functions 
efficiently and cost-effectively. 

Administration's Volunteerism Initiative 

These inevitable changes in service delivery mechanisms will also, 
very simply, choke off any ability we might have had to respond to the 
President's desire to expand the role of the voluntary sector in 
addressing the needs of communities. As a participant in the 
President's Task Force on Private Sector Initiatives, I am very 
familiar with what Mr. Reagan was trying to foster. Among other things, 
the group was charged with the responsibility to "... help encourage 
more private contributions of both human and financial resources to 
the progress of America's communities." More specifically we were 



133 



to recommend means to "identify and eliminate impediments to private 
initiatives" and "explore and improve incentives used to encourage 
private initiative." Ironically, now we are presented with a revision 
in Circular A-122' which will not only erect new impediments to our 
contributions, but will also tie our hands and make it virtually 
impossible to maintain our existing level of service, much less any 
increase. 

This contradiction cannot be explained away by cost considerations 
either. In fact, the revision will impose new expenses on the govern- 
ment. We have traditionally been able to share the costs of equipment; 
now the contract will have to assume the full price of telephones, 
typewriters, copying machines, and any other items used in daily office 
operations. This is hardly an efficient use of the public's assets, 
both in money and time. Cumbersome bookkeeping procedures will be 
necessary, which will only serve to divert already limited resources 
from direct service delivery. Rather than less bureaucracy, less red 
tape, and less regulation, both the government and the contractor will 
be faced with increasingly complex and uncalled-for procedures. 

Enforcement 

Because OMB has offered no concrete guidelines for enforcement 
of the new Circular, one is lead to question how such a sweeping edict 
could be enforced. The breadth of the regulation will undoubtedly 
lead to one of two unreasonable extremes — either so few agencies 
will be examined that it will lead to charges of harassment, or so 
many will be reviewed that auditors will be unable to carry out any 
of their other duties. The spectre of abuse and intimidation 



134 



is raised when such seemingly unlimited and ambiguous authority is granted 
to any agency. 

Further, the rules suggest that in the pursuit of alleged vio- 
lations, OMB would have access to all of an agency's accounts and 
personnel. There are a number of other unanswered questions pertaining 
to enforcement, such as: How will OMB determine if an employee paid 
with grant monies was "induced" to engage in political activities? 
How will they determine what constitutes five percent of office space 
and if it was devoted to political advocacy? And why is five percent 
a valid benchmark? Will there be a standardized procedure for taking 
action against a contractor who has been found in violations? 



Conclusion 

For over 70 years, the National Urban League has strived to 
achieve equal opportunity for blacks, the poor and others whose voices 
are so often neglected. For approximately 10 years, we have been 
assisted in these efforts through the acquisition of federal con- 
tracts which provide needed services to the poor — services such as 
job training, housing counseling, and educational assistance. We have 
been awarded these contracts because we have a track record which 
shows that we do an efficient and cost-effective, and above all, 
needed job. 

Now it seems without reason or validity that our application of 
federal support is being questioned. We do not accept this sudden 
reversal and skepticism, and therefore submit that OMB ' s proposed 
revision is both vincessary and unconstitutional. For a certainty, 
it dramatizes a disparity in the actions versus -the words of an 
administration which professes to be an advocate of greater voluntarism 
and community efforts. ' 

Nevertheless, the National Urban League has every intention of 
continuing to provide direct services to minorities and the poor — as 
we've done for seven decades. Furthermore, we believe that in order 
to provide these services we must continue to advocate why they are 
so greatly needed by those who continue to be left out of the economic 
mainstream. 



135 

Mr. Brooks. Thank you very much and now I might ask you one 
question, if you would be willing. 

Ms. Cooper. Certainly. 

Mr. Brooks. If local chapters of organizations such as yours are 
compelled to duplicate facilities and personnel in order to comply 
with an OMB proposal, do you foresee an increase in the cost of 
delivering services, both to the Federal Government and to others, 
to the recipients? 

Ms. Cooper. The National Urban League has 118 affiliates and 
in some of those very small affiliates, there would be a choice be- 
tween Federal dollars and advocacy, point blank. Some of those af- 
filiates have staffs of two and three people. We have a few large 
ones, Chicago, San Francisco, and so, but the average size of those 
118 is five people — some below five and some above five, and those 
choices would be very hard to defend to the community that they 
serve. 

Mr. Brooks. I want to thank you very much. I appreciate your 
coming down and contributng to this hearing. 

Now, our next witness is Thomas S. Deans, the executive director 
of the Appalachian Mountain Club of Boston, Mass. He has been a 
member of the staff of AMC since 1964 and has served as executive 
director since 1975. He has served on the Appalachian Scenic 
Trails Advisory Council, the Standards Committee, and the board 
of directors of Citizens for America's Endangered Wilderness. He is 
also active in the Environmental Defense Fund, National Trails 
Council, Sierra Club, and the Wilderness Society. 

He is a graduate of the University of Maine, and he lives in In- 
tervale, N.H. Welcome, Mr. Deans. 

STATEMENT OF THOMAS S. DEANS, EXECUTIVE DIRECTOR, 
APPALACHIAN MOUNTAIN CLUB 

Mr. Deans. Thank you, Mr. Chairman. I would ask that all of my 
remarks be entered as part of the record. 

Mr. Brooks. Without objection, so ordered, and the gentleman 
will proceed. 

Mr. Deans. Mr. Chairman, since its founding in 1876, the Appa- 
lachian Mountain Club has been a leader in the establishment and 
management of public and private lands and facilities for outdoor 
recreation. We pride ourselves in our relationship, our working re- 
lationship with many State, Federal and local agencies and the 
public service it has provided through those partnerships. 

We could give numerous examples of our work with these agen- 
cies, and one I might add, Mr. Chairman, we are working with the 
Texas Trail Association, a good group in your State. We are ap- 
palled that President Reagan on one hand calls for improving the 
public-private partnerships, and for strengthening the volunteer 
sector, and the State and local agencies so that they can assume a 
greater role in the delivery of services, and at the same time pro- 
mulgates administrative regulations that to us appear to stifle and 
even prohibit some of those partnerships. With Independent Sector 
and many of the other groups we work with, we have worked hard 
over the last couple of years to see that these partnerships are 
strengthened and improved. In fact, the Appalachian Mountain 



136 

Club recently received a Richard King Mellon Foundation grant to 
take our model of partnership out to other parts of the country to 
help strengthen the relationship that our voluntary groups can 
have with their State counterparts and Federal counterparts. 

Mr. Chairman, I was surprised to hear this morning from Mr. 
Wright that it was small nonprofit voluntary groups that have 
problems with living up to the current regulations. He has never 
talked, or no one from OMB has ever talked to anyone that I am 
aware of in those small nonprofit, volunteer groups and I agree 
with you and I appreciate the comments from you and the other 
members of the subcommittee to the representatives from OMB 
about getting out and talking to those groups that will be affected 
by the regulations and changes that they are talking about. 

Mr. Chairman, the voluntary groups of this country are working 
hard to see that their role is strengthened and that they do their 
part in carrying out the public service obligations that we all feel, 
and we look forward to continuing that. We do feel that the 
changes that were suggested to Circular A-122 would run counter 
to this thing that we are all working together on. Thank you very 
much, Mr. Chairman. . 

[Mr. Deans' prepared statement follows:] 



137 



STATEMENT OF THOMAS S. DEANS 
EXECUTIVE DIRECTOR OF THE APPALACHIAN MOUNTAIN CLUB 

BEFORE THE SUBCOMMITTEE ON LEGISLATION AND NATIONAL SECURITY 
OF THE HOUSE COMMITTEE ON GOVERNMENT OPERATIONS 

ON OFFICE OF MANAGEMENT AND BUDGET CIRCULAR A-122 
Cost Principles for Nonprofit Organizations 

March 1, 1983 

Mr. Chairman, members of the Subcommittee on Legislation and 
National Security, I am Thomas S. Deans of Intervale, New 
Hampshire, Executive Director of the Appalachian Mountain Club. 

The Appalachian Mountain Club is an association of 28,000 
volunteers, principally in the northeastern states, organized to 
establish and manage protected land areas and waterways to 
preserve their natural beauty and integrity, and provide 
appropriate public access. To accomplish this objective, we 
provide recreational activities, educational programs and 
supporting facilities, with increased emphasis on urban and 
suburban areas. We provide the volunteer organizational 
structure to support this purpose and make our organizational 
expertise available to others. 

On behalf of the Appalachian Mountain Club I appear today to 
request that this committee join with us in urging the 
Administration to withdraw OMB Circular A-122. 

The revisions are intended to prevent the use, directly and 
indirectly, of federal funds for political advocacy by grantees 
and contractors. The effect of the circular would be to prohibit 
the use for advocacy on non-federal funds as well. 

In addition, prohibited "political advocacy" activities 
would be greatly expanded far beyond any restrictions currently 
imposed by Congress even to include "influence [of] governmental 
decisions through communications with any member or employee of a 
legislative body, or with any governmental official or employee 
who may participate in the decision-making process." [para. 
33(b)(4), emphasis added]. 



138 



For instance, communications with a federal agency 
concerning proposed regulations (or, indeed, submission of 
comments to OMB itself regarding future amendments to Circular 
A-122), or communications with a state or municipal planning 
commission concerning a proposed land use plan would equally 
constitute "political advocacy. " 

Since its founding in 1876, The Appalachian Mountain Club 
has been a leader in the establishment and management of public 
lands and facilities for outdoor non-motorized recreation. It 
played a dominant role in the formation of both the U. S. Forest 
Service and the National Park Service, the enactment of the 
National Scenic Trails Act, the establishment of the 2200-mile 
Appalachian Trail and both state and national legislation 
concerned with the wise stewardship of our outdoor heritage. 

The special relationship we have built over the years with 
the White Mountain National Forest in New Hampshire is a model of 
public-private partnerships, so much so that the R. K. Mellon 
Foundation of Pittsburgh has underwritten a project to replicate 
that relationship in all parts of the country with other 
nonprofit organizations and federal and state agencies. The U. 
S. Forest Service has contributed a staff person and his expenses 
to that project in support of the partnership. Under this grant 
from a private foundation we currently have pilot projects on 
public lands in the states of Florida, Georgia, New Mexico, 
Colorado, Washington, Pennsylvania, Ohio and two' in California. 
Response to this innovative project has been overwhelming. As an 
example, the Albuquerque New Mexico, project involves the U. S. 
Forest Service, the U. S. Soil Conservation Service, the 
Albuquerque Parks and Recreation Department, and a coalition of 
the New Mexico Ski Touring Club, the volunteer Open Space Task 
Force, the New Mexico Mountain Club, the Audubon Society, the 
local chapter of the Sierra Club and other individual volunteers. 



139 



We, like many other volunteer environmental/conservation 
nonprofit organizations, are seriously threatened by the proposed 
modifications in OMB Circular A-122. We pride ourselves in our 
work with and for state and federal agencies, especially their 
staff, in order to ensure that their guidelines, rules, 
administrative procedures, etc. are "ecologically sound, socially 
responsible and economically feasible." And we from time to time 
are reimbursed for on-the-ground services we provide these 
agencies. For instance, the Supervisor of the White Mountain 
National Forest has worked with our assistance preparing unit 
plans for the Forest, and the A.M.C. maintains some 350 miles of 
hiking trails and shelters on public lands under a cooperative 
agreement with the Forest Service. 

If the OMB modifications were adopted, this mutually 
advantageous arrangement could become illegal, and present 
federal budget restrictions would prevent the Forest Service from 
providing these public services. 

We could give numerous other examples of work with all sorts 
of state and federal agencies helping to manage outdoor 
recreational opportunities, and the devastation such proposed 
regulations would cause. We are appalled that President Reagan, 
on the one hand calls for improving public-private partnerships, 
for strengthening the volunteer sector and state and local 
agencies so they can assume a greater responsibility for the 
delivery of public services heretofor provided by the federal 
government, and at the same time, promulgates administrative 
regulations that stifle, even prohibit, those same partnerships! 

We urge you and your staff to make every effort to ensure 
that such potentially destructive regulations never take effect. 
We ask for your help in preserving those volunteer organizations 
so unique to our nation and that benefit both the individual 
states and the whole country. 

Thank you for your attention. 



20-644 0—83 10 



140 

Mr. Brooks. Thank you, and I have one question. How would 
this proposal affect nonprofit organizations like your own from de- 
livering services at the local level? 

Mr. Deans. Mr. Chairman, I noticed just a day or so ago in the 
Federal budget proposal for 1984 for the Department of Agriculture 
that that agency alone is counting on 50,000 volunteers to contrib- 
ute $22 million worth of conservation work in 1984. To do that they 
are going to have to work in partnership and unison with the Fed- 
eral agencies, and there will be some sharing of services. I think if 
the administration is going to accomplish some of their own goals, 
this program here will run counter to that at the local level with 
the small trail groups that we find all over this country. 

Mr. Brooks. I thank you, Mr. Deans. 

Mr. Deans. Thank you, Mr. Chairman. 

Mr. Brooks. Our next witness is Paul A. Kerschner, associate di- 
rector of the division of legislation of the American Association of 
Retired Persons. Prior to joining the staff of AARP, he was a direc- 
tor of the community programs of the Gerontology Center at the 
University of Southern California. He also worked for the Social 
Security Administration and the Governor's Commission on Nurs- 
ing Homes in Maryland. 

He has a masters and doctorate in public administration from 
the University of Southern California. We will be delighted to put 
your remarks in the record and to hear your comments, Mr. 
Kerschner. 

STATEMENT OF PAUL A. KERSCHNER, ASSOCIATE DIRECTOR, 
DIVISION OF LEGISLATION, AMERICAN ASSOCIATION OF RE- 
TIRED PERSONS 

Mr. Kerschner. My legitimacy, Mr. Chairman, is that my wife 
was born in Borger, Tex. 

Mr. Brooks. Borger, Tex. Wonderful. 

Mr. Kerschner. Mr. Chairman, the American Association of Re- 
tired Persons feels that issues of left and right ideology should be 
fought in the hills of New Hampshire, not promulgated in the dark 
caves of the Office of Management and Budget. 

Let me stress at the outset that the American Association of Re- 
tired Persons fully supports the objective denying use of Federal 
grant funds for political advocacy. We have never done that, and 
will never do so. Our Federal and State legislative departments are 
entirely funded from association sources. The cost of copying, per- 
sonnel, postage and any other activity related to political advocacy 
is paid exclusively from AARP funds. 

So broad is the scope of these proposed regulations, however, and 
so detailed is their specifications, that one must wonder if the de- 
fined goal is the real one. Is the goal truly to prohibit use of Feder- 
al funds for political advocacy, or is it to limit political advocacy 
itself? Or is the goal perhaps to establish a mechanism for denying 
funds to certain programs Congress has mandated, but which the 
administration disfavors? 

Such questions of motivation are inevitably raised when one ana- 
lyzes the proposed sanctions against the perceived evil. The pro- 
posed regulations are grossly disproportionate. They are disruptive 



141 

and potentially mischievous. They are possibly unconstitutional 
and they are clearly a usurpation of congressional authority. 

Existing laws established by Congress already address the basic 
issues raised by these regulations. The Internal Revenue Code sets 
certain limits on lobbying expenditures for private nonprofit orga- 
nizations. Congress has in the past, where it has deemed appropri- 
ate, proscribed certain political advocacy activities as part of its ap- 
propriations process. 

While we claim no special competence to judge the constitutional 
issues involved, it appears to us that these proposed regulations 
exceed OMB's statutory authority. Surely OMB has legal authority 
to develop regulations to implement laws enacted by Congress, but 
it has no basis for engaging in lawmaking on its own. A legal 
memorandum from the Washington law firm of Caplin & Drysdale 
states, and I quote: 

A strong legal argument can be made that OMB has no statutory authority for 
the proposed restrictions on lobbying and other participation by nonprofit grantees 
in the governmental decisionmaking process. 

To illustrate the disruptive and potentially mischievous nature of 
the proposed regulations, consider their restrictions on building uti- 
lization. Under the proposal, Federal reimbursement for the costs 
of building and office space would be disallowed when 5 percent or 
more of the office space is devoted to political activity, even if these 
costs are carefully monitored and properly allocated. 

If an organization has for example, as we do, a title V Senior 
Community Service Employment project, housed in the same build- 
ing with a legislative advocacy unit, one activity or the other might 
have to move into another building. How such disruption and in- 
creased costs help to achieve the defined goal escapes us, Mr. 
Chairman. 

Similarly, the proposed regulations would deny reimbursement 
for an individual employee's administrative costs for a Federal 
grant program, if that employee devoted any time to political advo- 
cacy, even if those costs are carefully monitored and properly allo- 
cated. One reason we and other grant administrators are able to 
keep administrative costs down is the part-time assignment of ex- 
perienced managers to grant supervision. Beyond the increased 
costs such a regulation would impose, it also raises — according to 
Caplin & Drysdale — some questions about first amendment rights. 

That which will be most troublesome to this committee — and all 
Members of Congress, we suspect — is the greatly expanded defini- 
tion the proposed regulations give to political advocacy. They 
would not only include lobbying in the classical sense, but would 
also apply to public interest litigation as a friend of the court or 
any effort to influence Government decisions through communica- 
tion with any member or employee of a legislative body, or with 
any governmental official or employee who may participate in the 
decisionmaking process. 

Strictly enforced, such a restriction would appear to preclude 
any grant administrator, or grant participant, from talking with a 
Member of Congress, or a congressional staff member. 



142 

Restricting such communication could deny Congress its legiti- 
mate oversight responsibility while further eroding first amend- 
ment rights. 

Because of these reasons, and others, AARP urges your commit- 
tee to suspend the effective date of the proposed regulations, allow- 
ing Congress sufficient time to review all the legal, administrative 
and financial issues involved. 

We recommend that followup hearings be held to determine 
whether, in fact, there is a problem under current law and admin- 
istrative policies. If there is, then appropriate congressional com- 
mittees should consider ways to remedy the problem through proc- 
esses that are both constitutional and cost efficient. 

Thank you, Mr. Chairman. 

Mr. Brooks. Thank you very much for coming down and give 
your wife my best. We are delighted to have you here. We appreci- 
ate your contribution. 

[Mr. Kerschner's prepared statement follows:] 



143 

STATEMENT 
OF THE 
AMERICAN ASSOCIATION OF RETIRED PERSONS 
PRESENTED BY 
PAUL A. KERSCHNER 

Mr. Chairman, members of the committee. 

We applaud your committee for conducting these early hearings 
on the proposed 0MB rules relating to federal grants and political 
advocacy. 

By defining a noble goal, but prescribing a faulty means of 
achieving that goal, they confront you— and all grant administra- 
tors—with an interesting dilemma. To oppose the rules because of 
the faulty means runs the risk of being misunderstood. 

So let me stress at the outset that the American Association 
of Retired Persons fully supports the objective of denying use of 
federal grant funds for political advocacy. We have never done 
that, and would never do so. Our federal and state legislative 
departments are entirely funded from Association sources. The 
cost of copying, personnel, postage and any other activity related 
to political advocacy is paid exclusively with AARP funds. 

So broad is the scope of these proposed regulations, however, 

# 

and so detailed is their specifications that one must wonder if the 
defined goal is the real one. Is the goal truly to prohibit use of 
federal funds for political advocacy, or is it to limit political 
advocacy itself. Or is the goal, perhaps, to establish a mechanism 
for denying funds to certain programs Congress has mandcted, but 
which the Administration disfavors? 



144 



Such questions of motivation are inevitably raised when one 
analyzes the proposed sanctions against the perceived evil. The 
proposed regulations are grossly disproportionate. They are 
disruptive and potentially mischievous. They are possibly 
unconstitutional. And they are clearly a usurpation of Congressional 
authority. 

Existing laws established by Congress already address the basic 
issue raised by these regulations. The Internal Revenue Code sets 
certain limits on lobbying expenditures for private, non-profit 
organizations. And Congress has in the past, where it has deemed 
appropriate, proscribed certain political advocacy activities as 
part of its appropriations process. 

While we claim no special competence to judge the constitutional 
issues involved, it appears to us that these proposed regulations 
exceed OMB's statutory authority. Surely 0MB has legal authority 
to develop regulations to implement laws enacted by Congress, but 
it has no basis for engaging in lawmaking on its own. 

• - 

A legal memorandum from the Washington law firm of Caplin & 
Drysdale states: "...a strong legal argument can be made that 0MB 
has no statutory authority for the proposed restrictions on lobbying 
and other participation by non-profit grantees in the governmental 
decision-making process." 

To illustrate the disruptive and potentially mischievous nature 
of the proposed regulations, consider their restrictions on building 
utilization. Under the proposal, federal reimbursement for the costs 
of buildings and office space would be disallowed when five percent 
or more of the office space is devoted to political activity, even 
if those costs are carefully monitored and properly allocated. 



145 



If an organization has, for example, a Title V Senior Community 
Service Employment project housed in the same building with a 
legislative advocacy unit, one activity or the other might have to 
move into another building. How such disruption and increased costs 
could help achieve the defined goal escapes us. 

Similarly, the proposed regulations would deny reimbursement 
for an individual employee's administrative costs for a federal 
grant program if that employee devoted any time to political 
advocacy, even if those costs are also carefully monitored and 
properly allocated. One reason we and other grant administrators 
are able to keep administrative costs down is the part-time 
assignment of experienced managers to grant supervision. Beyond 
the increased costs such a regulation would impose, it also raises- 
according to Caplin & Drysdale— some questions about First Amendment 
rights. 

That which will be most troublesome to this committee— and all 
members of Congress—, we suspect, is the greatly expanded definition 
the proposed regulations give to "political advocacy." 

They would not only include lobbying in the classical sense, but 
would also apply to public interest litigation as a friend of the 
court or any effort "to influence government decisions through 
communication with any member or employee of a legislative body, or 
with any governmental official or employee who may participate in 
the decision-making process." 

Strictly enforced, such a restriction would appear to preclude 
any grant administrator, or grant participant, from talking with a 
member of Congress or a Congressional staff member. 



146 



Restricting such communication could deny Congress its 
legitimate oversight responsibility while further eroding First 
Amendment rights. 

Because of these reasons and others, AARP urges your committee 
to suspend the effective date of the proposed regulations, allowing' 
Congress sufficient time to review all of the legal, administrative 
and financial issues involved. 

We recommend that follow-up hearings be held to determine 
whether, in fact, there is a problem under current laws and 
administrative policies. If there is, then appropriate Congressional 
committees should consider ways to remedy the problem through processes 
that are both constitutional and cost-efficient. 



147 

Mr. Brooks. I suggest that we hear Mr. Botwinick from the Cor- 
coran Gallery, and then we break for lunch and come back at 1:30 
and continue to hear the remainder of our witnesses. If this is ac- 
ceptable, I believe that is the best way to operate. 

Mr. Botwinick is director and chief executive officer of the Corco- 
ran Gallery and the School of Art here in Washington. He repre- 
sents the American Association of Museums as a member of their 
executive council. 

He holds a B.A. from Rutgers College and an M.A. from Columbia, 
both degrees in the arts area. After working as a college instructor, 
he held positions with several museums. In addition he is active in 
a number of professional organizations. 

We are glad to have you here. 

STATEMENT OF MICHAEL BOTWINICK, DIRECTOR, CORCORAN 
GALLERY OF ART, WASHINGTON, D.C. 

Mr. Botwinick. Thank you, Mr. Chairman, I will try to be mind- 
ful of the fact that everybody would like to get to a break and with 
your permission summarize briefly my remarks. 

Mr. Brooks. Without objection, your statement will be made a 
part of the record and we will hear your comments. 

Mr. Botwinick. The museum community is deeply concerned 
about the impact of these proposals on our capacity to function ef- 
fectively in our communities and States, and to assure our long- 
term capacity to preserve precious cultural resources for the 
Nation. 

Among the many major philosophical and legal problems that 
might be raised by the regulations, I would like to cite three prob- 
lems of a more practical nature that we view as unworkable and in 
many senses unjust. 

As the proposed regulation is now written, there is no balance 
struck between the percentage of support an institution receives 
from the Federal Government and the amount of advocacy it un- 
dertakes or how these regulations would affect that. If a director or 
curator receives 5 percent of his salary through the overhead provi- 
sion of a Federal grant, the regulation would disqualify the other 
95 percent of his time for use in any type of advocacy. 

Second, the proposed regulation expands the definition of advoca- 
cy beyond legislative activity to include commenting on regulations 
and supporting legal actions with implications for an entire class of 
organization. It also expands the prohibition against advocacy to 
include activities undertaken at the State and local level. In this 
last regard the regulation is particularly unsound. Both the nature 
of Federal support to museums and the legal obligations of muse- 
ums as public trusts regulated by the States make this change un- 
tenable for most museums and most of the cultural community. 

Last, the inclusion of indirect or overhead costs, that are part of 
a Federal grant or contract as triggers in the application of these 
rules, would be incapacitating for most nonprofit organizations, 
particularly museums. 

Federal support represents a very small percentage of any muse- 
um's budget. In the aggregate we estimate that it represents less 
than 5 percent of the total of museum operating budgets through- 



148 

out the country. The portion of Federal support that goes toward 
overhead is probably less than 1 percent, given the generally low 
indirect cost rates that we all have negotiated with our Federal 
agencies. 

For this small percentage of indirect cost reimbursement from 
the Federal Government an entire museum and its staff is disquali- 
fied for undertaking any advocacy efforts either on its own behalf 
or on behalf of the museum community. 

I think that I would digress and just suggest to you a few of the 
areas in which the museum community would have been ineffec- 
tive in things that would have been directly affected by this regula- 
tion. 

To begin with, the very existence of both the National Endow- 
ment for the Arts and National Endowment for the Humanities 
would be called into question, if we were operating under this regu- 
lation. We all took part in a national debate on these issues 
through the Belmont Commission and in a series of other reports 
that defined the area in which the Federal Government was going 
to get involved in support of museums, the arts, and the human- 
ities. 

More recently, in conjunction with the Institute of Museum Serv- 
ices, the museum community commented effectively on their pro- 
gram to support efforts to improve professional standards for muse- 
ums to provide that very agency with a method of arriving at 
qualitative judgments on the effectiveness of museums. 

Several years ago when the Department of Energy issued regula- 
tions with regard to energy usage in institutions, we found our- 
selves with zoos and botanic gardens whose very charges were 
threatened by those regulations. Rare species of plants and animals 
were not finally subject to energy cutbacks but these comments 
that resulted in this exemption would have been impossible under 
these regulations. 

Enabling legislation for the UNESCO convention prohibiting the 
illicit transport of works of art which was an issue in this Congress 
for nearly a decade would never have been passed without the ef- 
fective advocacy of the museum community which from a profes- 
sional point of view helped outline and define the issues involved. 

On the State and local level, many museums using the rigorous 
matching requirements of the national endowments' challenge 
grant programs have created effective partnerships with their 
State and local governments which have allocated State and local 
resources in partnership with Federal and private resources. With- 
out the ability to make a real claim on the importance of the muse- 
ums and other cultural institutions, without the ability to develop 
positions that point out that this is a public good, these partner- 
ships would indeed, in my judgment, often not come to fruition. 

The effect of the regulation would be so wide ranging in fact that 
evenhanded enforcement would probably be impossible. None of 
the organizations that are reflected within the American Associ- 
ation of Museums has the capacity to Undertake the kind of separa- 
tions or audits that would result and we would all be faced with 
making a kind of a Hobson's choice. We are already severely, and 
we think properly, constrained in the area of political activity by 
the IRS regulations. Our 501(c)(3) ruling, is far more precious to us 



149 

than let us say the $35,000 we receive from the Institute of 
Museum Services. The notion that there is a rampant problem in 
the private sector I think has been demonstrated to be misinforma- 
tion today. The suggestion that these regulations are recommended 
in order to defend first amendment rights and are based on, and I 
quote from the circular, a "concern for protecting the free and 
robust interchange of ideas" seems to me to be a kind of a rhetori- 
cal chicanery. Thank you. 

Mr. Brooks. I want to thank you very much for a fine statement, 
Mr. Director. We appreciate your coming down, and making a con- 
tribution to show the breadth of this effort to restrict and make 
more difficult the exercise of freedom in this country. 

[Mr. Botwinick's prepared statement follows:] 



150 

Testimony of Michael Botwinick 
Director, Corcoran Gallery of Art 

on behalf of 
American Association of Museums 

Mr. Chairman and members of the committee: 

I would like to thank you for the opportunity to express my reservations 
and those of the museum community concerning the revisions to Circular A-122 
proposed by the Office of Management and Budget. My name is Michael Botwinick. 
I am the director of the Corcoran Gallery of Art, a position I have held since 
December, 1982. For eight years, I was the director of the Brooklyn Museum. I 
am here today in my capacity as a museum director with extensive experience with 
federal grants and as a representative of the American Association of Museums, 
an organization with a membership of 7000 museums, museum professionals and 
trustees. 

The museum community is deeply concerned about the impact of the proposed 
revisions on their capacity to function effectively in their communities and 
states, and to assure their long-term capacity to preserve precious cultural 
resources for the nation. Among the many major philosophical and legal problems 
raised by the regulation, I would like to cite three problems of a practical 
nature that we view as unjust and unworkable. 

1. As the proposed regulation is now written, there is no balance struck 
between the percentage of support an institution receives from the 
federal government and the amount of advocacy it undertakes. If a 
director or curator receives five percent of his salary as part of a 
federal grant, the regulation would disqualify the other 95 percent of 
his time for use in any type of advocacy. 



151 



2. The proposed regulation expands the definition of advocacy beyond 
legislative activity to include commenting on regulations and 
supporting legal actions with implications for a class of 
organizations. It also expands the prohibition against advocacy to 
activities undertaken at the state and local level. In this last 
regard, the regulation is particularly unsound. Both the nature of 
federal support to museums and the legal obligations of museums as 
public trusts regulated by the states make this change untenable for 
museums and most of the cultural community. 

3. The inclusion of indirect or overhead costs that are part of a federal 
grant or contract as "triggers" in the application of these rules is 
incapacitating for most nonprofit organizations, particularly museums. 
Federal support is a very small percentage of any museum's budget. In 
the aggregate it is less than five percent of total museum operating 
budgets. The portion of that support that goes to indirect or overhead 
costs is probably less than one percent given the generally low 
indirect cost rate most museums have negotiated with federal agencies. 
For this small percentage of indirect cost reimbursement from the 
federal government, an entire museum and its staff is disqualified from 
undertaking any advocacy efforts either on its own behalf or on behalf 
of the museum community. 

To understand the implications of the proposed regulation on museums and 
most of the cultural community, I would like to describe briefly the nature of 
federal support to museums and examples of the types of advocacy museums 
undertake. 

The principal agencies that fund museums are the Institute of Museum 
Services, the National Endowment for the Arts and the National Endowment for the 
Humanities. Some support for basic research and collections is available to 
science museums through the National Science Foundation. 



152 

The Institute provides small grants for general operating support to 
approximately 500 museums each year. Until fiscal 1983, grants from IMS were 
for $35,000 or less; the maximum this year goes to $50,000. At the endowments, 
grants are available for special projects, such as exhibitions and conservation, 
and for challenge grants—special grants that require a match of three new, 
nonfederal dollars for each dollar of federal support provided. 

Probably the most obvious and unfair adverse consequence to cultural 
institutions of the proposed regulation is in the area of NEA and NEH challenge 
grant support. Those on the committee with major cultural institutions in their 
districts may be aware of challenge grants and their impact over the five years 
they have been awarded. In some ways these grants are the model of what a 
federal program should be. The goal is to insure sound financial management and 
the long-term health of cultural organizations through broadening the base of 
support. For each federal dollar awarded, a museum, must raise three new 
dollars from individuals, corporations, foundations, and state and local 
government. Challenge grant recipients on the average have matched federal 
funds five to one — an impressive record. The challenge of these grants is not 
just toMocate a certain amount of new money in a certain period of time, but to 
alter fundamentally the pattern of support for cultural institutions. Both of 
the museums I have directed have had challenge grants, and I can testify to 
their impact on museums and their sources of support. 

The need to generate state and local government funds to match these grants 
has meant developing persuasive cases for committing precious public money for 
the cultural well-being of a community or state, in other words effective 
advocacy. This type of activity, which has been key to increasing support for 
cultural activities at the state and local level, is seriously compromised by 
the proposed regulation. 



153 



Another example of the impact of the proposed regulation, and one that 
illustrates the institutional "gridlock" that is the logical outcome of the 
regulation, is the effect of an Institute of Museum Services grant for general 
operating costs. The Corcoran Gallery has an annual operating budget of $2.25 
million; last year it received a grant for $35,000 from IMS. The grant became a 
part of the general operating budget and was used for the ongoing maintenance of 
our building and programs. It represented approximately 1.5 percent of our 
budget. Nevertheless, under the proposed regulation our entire budget would be 
"tainted" for lobbying purposes. We would have to forego our legitimate 
interest in a variety of regulatory matters, including this one, and important 
issues of federal cultural policy. 

This regulation may have had its start in a correct impulse to avoid 
federal subsidy of activities that were directed at self-promotion rather than 
the promotion of the public good. The regulation that emerged does not address 
the issue except to ban many necessary forms of public expression in the 
nonprofit community. 

The effect of the regulation would be so wide ranging, in fact, that 
even-handed enforcement would be impossible. None of the agencies I have 
mentioned has the capacity to undertake the audits that would result. Some 
might find that a reason to ignore the implications of the regulation and to 
conclude, that having too much effect, it would have none. That is precisely 
the reason to oppose it. A regulation that can not be enforced across the board 
will be enforced selectively. If this regulation is aproved, it opens the way 
to harassment through audit and forfeiture of grant funds. 

The American Association of Museums urges the committee to disapprove this 
regulation as it is proposed. 



154 

Mr. Brooks. We will stand recessed until 1:30. 
[Whereupon, at 12:40 p.m., the subcommittee recessed until 1:30 
p.m., the same day.] 

AFTERNOON SESSION 

Mr. Brooks. The subcommittee will come to order. 

Next we will hear from June Bucy, the chief executive officer of 
the National Network of Runaway and Youth Services, Inc. She 
served for 11 years as the executive director of the Youth Shelter 
of Galveston, in the Ninth Congressional District of Texas. She also 
served on the boards of youth services organizations across the 
State of Texas and the Federal region, and was a member of the 
Special Select Committee on Child Abuse of the Texas House of 
Representatives. 

She has a very outstanding assistant, her husband. 

It is a pleasure to have you with us today. Please proceed. 

STATEMENT OF JUNE BUCY, CHIEF EXECUTIVE OFFICER, THE 
NATIONAL NETWORK OF RUNAWAY AND YOUTH SERVICES, INC. 

Ms. Bucy. Thank you. I will not read this whole statement with 
hope you will put it in the record. 

Mr. Brooks. Without objection, it will be placed in the record. 

Ms. Bucy. I am speaking on behalf of the National Network of 
Runaway and Youth Services and our 600 member programs across 
the country. 

It seems that in all of this criticism of these regulations you have 
overlooked something pretty important. It is kind of neat for me as 
a nice little old lady in tennis shoes to feel that OMB feels that 
your intelligence and your ability to judge is so weak that they 
need to protect you from me. 

Mr. Brooks. They judge us by themselves, you know. 

Ms. Bucy. However, there are some of us who work with pro- 
grams that deal with clients that are basically not our community's 
favorite people. We work in programs that will probably never 
have a whole lot of private money because there are some people in 
our society whose problems just simply don't attract private 
money. We need to look at the programs that are doing services for 
that part of our society that you, as congressional people, have 
deemed worthy of services, and yet no group of the private sector 
with private money is willing and able to minister to as you have 
chosen. 

We in the runaway and other youth services see ourselves as 
being advocates in the dictionary sense of the word, those "people 
who plead another's cause." 

A youngster alone on the street facing hunger or prostitution 
does not generally call his Congressman. But you and I know that 
it is the Congress that has provided more aid than has any other 
source for these children. 

If you had not heard advocates' voices who know about these 
children to help you in understanding the problems perhaps you 
would not have been a part of that provision. 

People wiser than I have covered many of the constitutional 
questions and the questions dealing with large organizations this 



155 

morning. I would like to add just a few things that it seems are 
important to smaller organizations. 

First, I would like to question whether your access to informa- 
tion may not already have been more curtailed than you are 
aware. 

In the attempt to eliminate paperwork, and to give States more 
freedom to approve their own plans for the use of Federal money, 
there is much less data about social programs than there used to 
be. 

One might wonder if there is even an attempt to disguise or 
ignore social problems by eliminating data collection about these 
problems. 

Apparently, what we don't choose to know, we can ignore. 

There is limited data, and if professionals working with people 
are prevented from educating you and the public, your information 
will be severely limited, and the public debate will not be balanced. 

There are no clear-cut answers to the interventions that Govern- 
ment should make in the lives of families. The struggle for the in- 
terface of the rights of individual privacy with legitimate public 
concern is an unending one. The attempt to design and deliver 
services that meet the genuine need of people in caring, account- 
able, and cost-effective ways is very likely a struggle that will not 
be over any time soon. 

Speaking on behalf of our programs I would like to say that to 
us, these proposed revisions seem impractical, impossible, and im- 
moral. 

Crisis intervention is often a work of rescuing people. One can 
only rescue a certain number of people when, if you have any 
brains at all, you begin to wonder why they keep on being in these 
situations. Why is there this constant flow of people needing rescu- 
ing? 

The issues begin to fall into clear patterns when we hear the 
same stories over and over again. 

If we are unable to work with decisionmakers at the local levels 
in such places as our schools, courts, and welfare agencies to pin- 
point suggested changes in procedure, then we will have to contin- 
ue to deal with problems one on one. Our problems are much too 
numerous to be approached in that fashion. 

I want to address another very practical matter. It has been my 
experience that when a program creatively meets the needs of a 
community, the people associated with that program become the 
experts in that area for that community. 

These people are not only expected to appear before decisionmak- 
ing groups to provide information and technical assistance, they 
are often appointed to be members of those same decisionmaking 
groups. 

This situation is not addressed by the proposed circular, but I 
think in not being addressed it would create uncertainty, and 
would, therefore, have a chilling effect on responsible participation 
in the community life by citizens with professional expertise. Were 
it clearly denied, then again those citizens would not have a way to 
influence the decisions about which their education and their com- 
mitment leads them to have concerns. 



20-644 O— 83 11 



156 

For small agencies it would be simply impossible to move to an- 
other place with another staff, another phone, another Xerox, to 
talk about the issues which affect their clients. It would be a waste 
of time and money, and we never have enough of either. 

Finally, our contention is that not only are these proposed 
changes impractical and impossible, but they are also immoral. 

The law in Texas, and in most States, requires the reporting of 
child abuse. If I know of a child who is being abused or neglected 
and do not report that maltreatment, I am guilty of a crime. 

This law and the child protective system it supports has saved 
the lives of thousands of children and is recognized as a moral re- 
sponse to an immoral situation. 

As a professional youth service worker I know of thousands of 
troubled children whose lives are endangered and whose future is 
threatened. 

I feel it is my moral duty to speak out. I feel I must work inten- 
tionally to inform the general public with the specific intention of 
creating a climate of opinion that will support changes to protect 
children. 

It is my moral obligation to join with others in advocacy organi- 
zations where the information and the judgment of many people 
can be combined to add to the public debate. 

Mr. Chairman, I feel it is my moral obligation as well as my 
privilege to communicate in a timely fashion, not just a written 
fashion, with you as a Member of the highest decisionmaking body 
of this country. 

Your rights are restricted if you and your staff cannot call on me 
and other people who have the information you need. 

I trust your wisdom to lead you to take the necessary steps to 
prevent the enforcement of the proposed revisions. 

Thank you for your attention to this. 

[Ms. Bucy's prepared statement follows:] 



157 

Statement to the 

Committee on Government Operations 

by June Bucy 
Chief Executive Officer 

The National Network of Runaway and Youth Services, Inc. 



Mr Chairman and members of the Committee, thank you for this opportunity 
to speak with you today. I am June Bucy and am speaking on behalf of the National 
Network of Runaway and Youth Services, Inc. The National Network is an organization 
that counts among its members over 600 independent youth and family service centers 
in 46 states. The organizational goals are to bring national attention to the 
needs of youth in crisis and to assist communities to develop cost effective 
programs of high quality to meet those needs. Most of our members are small 
programs which were created by civic or church groups responding to the needs of 
youth and families in their community. Ours is a lively system of people who 
expend great energy and enthusiasm working with people in crisis and educating 
the public about the factors that produce crisis situations in the family 
and the steps that may be taken to reduce the danger and harm to children. 

We are advocates in the dictionary sense of the word--those who plead 
another's cause. A youngster alone on the street facing hunger or prostitution 
does not generally contact his Congressman. But you and I know it is the Congress 
that has provided more aid than any other source for this child, and that it is 
the advocates voice you have heard to assist you in understanding the problems of 
these families. 

Your access to information may well have been curtailed already more than 
you may be aware. As I was preparing this statement I talked with people from 
many agencies and organizations. One issue emerged of which practitioners are 
acutely aware, but that apparently is not well known or recognized by those not 
involved with the day by day details of service delivery. That issue is that in the 
attempt to eliminate paper work and to give states more freedom to design and 
approve their own plans for the use of federal money, there is much less data 
collected than there used to be. To illustrate this point, let me tell you that 
for years the federally funded runaway programs were required to complete a data 
collection survey on each youth receiving service in the centers. That 
requirement no longer exists—collection and reporting of this data is now 
optional. One might wonder if there is even an attempt to disguise or ignore 
social problems by eliminating data collection about these problems. Again I 
illustrate from the runaway youth programs—the form is four pages long and has 
264 questions, not much is unexplored one would think. Yet no where on the form 
is there a question about sexual abuse a child might have experienced although 
program providers have found such abuse is a major cause of children running from 
their homes and a major threat to them on the street. Apparently what we do not 
choose to know, we can ignore. My discussion with others underlines the fact 
that diminished data collection and neglect of data in certain sensitive areas 
is characteristic of many presently funded federal programs. 



158 



When you Congressional people are asked to make decisions based on the needs 
of people, how are you going to know about those needs? If there is limite' data,, 
and if professionals working with the people are prevented from educating "ou and 
the public, your information will be severly limited and the policy debate will 
not be balanced. 

Decision makers at the federal, state, and local level need accurate 
information and education. There are no clear cut answers to difficult and 
confusing questions about how government should assist families. There are few, 
if any, communities where the design of the social services system perfectly 
matches the needs of the people—particularly of those people who act in 
unpredictable ways as adolescents often do. The struggle for the interface of the 
rights of individual privacy with legitimate public concerns is an unending one. 
The attempt to design and deliver services that meet the genuine needs of people 
in caring, accountable, and cost effective ways is likewise a lively struggle. 
Private sector social, religious, and civic organizations have historically played 
a role in this arena. Under the present administration they have been called upon 
by the federal government in its private sector and volunteer initiatives to play 
a larger role. It is encumbent upon Congress to spell out the ground rules for 
this participation, and you have done so quite effectively in several pieces of 
legislation restricting the use of federal funds for political or legislative 
activities. We understand that legislation and support it enthusiastically. 
Today, however, we are addressing proposed regulations that seem to lack 
a statuatory base and would substantially alter the relationship between government 
and the nonprofit community from the present relationship specified by Congress. 

The proposed revisions of OMB's Circular A-122 greatly expand the 
definitions of political advocacy and unallowable activities, and severly restrict 
your access to information. They propose federal control of the use of private funds 
by agencies which, often at the request of government, have accepted federal funds 
to provide services for those whom Congress has deemed in need of them. 

If these regulations are enforced^ service providers cannot enter into the 
normal dialogues concerning community issues ? and they cannot freely present 
information gleaned from their experiences to decision makers without the fear 
that they may be jeopardizing their agency's budget. These service providers, 
therefore, cannot do their best work. Programs will not be well designed to 
meet the needs of people* The public will not understand the issues, and the 
decision makers will not have the data they need to make appropriate decisions. 
Speaking on behalf of our member programs and those youth and families we 
serve, I want to say that to us the proposed revision if Circular A-122 appears 
to be impractical, impossible, and immoral. 

Social workers chose their profession because of their interest in people 
and their desire to help them better their conditions. Most professionals that I 
know set about their tasks with no thought of changing the system or of involving 

themselves in political advocacy--at least as that term has normally been defined. 
But having "rescued" one child after another from a similar crisis one soon begins 



159 



to realize that it would be much more efficient to prevent the crises. For 
example, many of the children who come to runaway centers list, among their 
problems, difficulties with their school experience. School failures and 
expulsions frustrate parents as well as children and the angry accusations may-cause 
a young person to feel unable to cope and unwanted by either the parents or the 
school. If he runs from this frustration, the police and courts may soon be 
involved. These issues begin to fall into clear patterns to a youth worker 
who hears the story over and over again. If that worker or the director of that 
program is unable to work with the decision makers in the local schools and courts 
to pin point suggested changes in procedures, then the situation continues to be 
repeated by student after student. It seems to me that our problems are too 
numerous to be approached in that fashion. We need to eliminate the dangerous 
curves and road blocks so that people will not continually crash against those 
obstructions and become victims that must be rescued. 

I want to address another very practical matter. It has been my experience 
that when a program creatively meets the needs of a community the people associated 
with that program become the "experts" in that area for that community. These 
people are not only expected to appear before decision making groups to provide 
information and technical assistance, they are often appointed to be members of 
those decision making groups. This situation is not addressed by the proposed 
revisions in the circular, but it seems to me to be a problem for many service 
providers that would create uncertainty and would, therefore, have a chilling 
effect on responsible participation in community life by citizens with professional 
expertise. 

Not only are the revisions impractical, but if enforced, they would make it 
impossible for many organizations to function. Good management procedures require 
an accountable Executive Director who is held responsible for the performance of 
the total agency and its community relationships as well as for the performance 
of a government funded program. T'o clear division can be made in delivering 
social services and in planning, designing, evaluating and redesigning those 
services. It is suggested that attempts to "influence" decisions about regulations, 
zoning, or funding can be done by another staff person, in another place, with 
another phone and another xerox. I doubt that this would be possible in large 
well funded agencies. I know that it would be impossible for small agencies on the 
front lines of service delivery. There is simply not enough staff and not enough 
money for these functions to be that separate. And there are certainly not enough 
sophisticated book keepers in our agencies to maintain clear records with such 
complex and unclear guidelines. 

Finally, our contention is that not only are the proposed changes 
impractical and impossible , but they are also immoral . The law in most states 
requires the reporting of child abuse. If I know of a child who is being abused 
or neglected and do not report that maltreatment, I am guilty of a crime. This 
law, and the child protective system it supports, has saved the lived of thousands 
of children and is recognized as a moral response to an immoral situation. 

As a profession youth service worker I know of thousands of troubled 
children whose lives are endangere'd and whose future is threatened. I feel it 
is my duty to speak out. 



160 



I must work diligently to inform the general public with the intention of 
creating a climate of opinion that will support changes in our systems that at 
present do not protect adolescents in crisis. 

It is my duty to participate in community discussions with decision makers 
and to contribute my understanding to that of others. 

It is my moral obligation to join with others in advocacy organizations 
that combine the information and judgment of many people to add to the public 
debate. It is an attack on voluntary organizations which are valuable threads 
in the fabric of our society to rule that the dues paid from private sources 
to such an organization and that staff participation in that organization paid 
for by private funds is unallowable if that staff person spends part of her time 
on a federally funded project. 

And, Mr. Chairman, I feel it is my moral obligation as well as my privilege 
to communicate in a timely fashion with you as a member of the highest decision 
making body in this free country. Your rights are restricted if you and your staff 
cannot call on me and other people who have information you need. You know there 
are problems in this nation, and you know they can be addressed when each of us 
plays his pa t and works together. I trust your wisdom to lead y° u to ta ^ e tne 
necessary st^ps to prevent the enforcement of the proposed revisions. 

Thank you for your attention to this issue and for allowing me to address 
it with you with morning. 



161 

Mr. Brooks. Thank you very much, Ms. Bucy. 

Would your organization be able to continue in operation with its 
present structure under the OMB proposal? 

Ms. Bucy. You have asked other people that question. So I have 
thought about it. I have two answers. One is that I just can't con- 
ceive of the fact that you are going to let these regulations go into 
effect, so I can't imagine how it would be if they were. 

At another level 

Mr. Brooks. You have lots of faith. 

Ms. Bucy. Absolutely. 

At another level, I don't think there is any regulation that 
anyone could pass that would prevent me from doing everything 
that I can to make it safer for children and for families to be 
united in our world today. But, I don't know exactly how we would 
do that. 

Our National Network receives no Federal funds. So as a nation- 
al body we can speak out and bring together such data and inter- 
pret it as it seems wise to us. 

Our member programs would probably have a great deal of diffi- 
culty, but I think I could say for them, too, that the causes and the 
children with which we work are so important that we would 
simply find a way of making their needs known. 

I think one of the ways that we might find, and this has not been 
addressed today, we would use our boards in our local programs as 
advocates. 

You know some of my board members, and know they have 
rather feisty ways of communicating. If that were the way the com- 
munications have to come, I don't know of any rule that could say 
a private citizen could not use his own time. 

I certainly would not have to be required or induced as the pro- 
posed version says, to work overtime in order to advocate for chil- 
dren. 

So I think no matter how tight the regulations are, truly commit- 
ted people will find a way to serve those that they care about. 

Mr. Brooks. I know that you are most resourceful and I want to 
thank you very much for being here. 

Mr. Clinger? 

Mr. Clinger. I have no questions. I would like to echo your senti- 
ments. Thank you very much for very helpful and refreshing testi- 
mony. 

Mr. Brooks. Our next witness is Mr. Forrest I. Rettgers, execu- 
tive vice president of the National Association of Manufacturers. 
He joined the NAM in 1974 and has served in his present position 
since 1977. He has broad experience in the military, government, 
and private industry. He has served as Deputy Assistant Secretary 
of Defense for International Security Affairs and as administrative 
assistant to Senator Harry F. Byrd, Jr. of Virginia. 

Mr. Rettgers holds an M.A. in international relations from 
George Washington University. 

He obviously is a man of rare ability, charm, and poise. We are 
delighted to have you. You may proceed. 



162 

STATEMENT OF FORREST I. RETTGERS, EXECUTIVE VICE PRESI- 
DENT, NATIONAL ASSOCIATION OF MANUFACTURERS, ACCOM- 
PANIED BY GARY D. LIPKIN, ASSISTANT GENERAL COUNSEL 

Mr. Rettgers. Thank you, Mr. Chairman. It is always a pleasure 
to be in front of you. I, for the business community, want to thank 
you for all the work that you have done in behalf of business, espe- 
cially the slow-pay bill in the last Congress. 

I am the executive vice president of the National Association of 
Manufacturers, NAM. With me today is Gary D. Lipkin, assistant 
general counsel of the NAM. 

We are most appreciative of the opportunity to appear here 
today to express the concerns of our membership on the recently 
proposed revision to OMB Circular A- 122. 

I would like to set the record straight that in the media when 
they referred to me as a F-blank-blank B-blank-blank for wanting 
to take this thing to the Hill, my wife, when she read it, said she 
was sure that that was a fighting bulldog. I just wanted to be sure 
that everybody understands that that is what they were talking 
about. 

That comment was made when I threatened to take this to the 
Hill and the reception that it would receive there. 

NAM is a nonprofit, voluntary business association consisting of 
over 12,500 member firms of all sizes from all parts of the country. 

NAM members employ about 85 percent of all employees en- 
gaged in manufacturing nationwide and they account for about 80 
percent of our Nation's industrial output. 

Further, approximately 78 percent of our members are entities 
that are generally considered to be small business. 

Let me make clear at the outset that NAM is not a Government 
contractor; we do not solicit or accept Federal grants of any type. 

OMB's proposed revision to Circular A-122 will nevertheless 
have an indirect effect on NAM as an entity and a very substantial 
and deleterious impact on a vast segment of our membership. 

So very broad and unrestrained is the OMB proposal that it liter- 
ally toys with fundamental and cherished first amendment rights. 
So, too, it has generated a furor the likes of which I have only 
rarely seen in many years of active participation in the govern- 
mental process, and I have been up here on the Hill since 1955. 

We are not at all unsympathetic to the objectives sought to be 
achieved by OMB in its proposal, namely preventing Federal funds 
from being used for political advocacy or direct lobbying. 

As a general proposition, taxpayers' dollars should not be used to 
directly fund overt partisan activities or lobbying, as those terms 
are traditionally defined and understood. 

Now, we contend that if there have been past abuses in this area, 
OMB's proposed cure, when viewed in its totality, may prove to be 
far worse than the suggested disease. 

In our view OMB's proposal is rife with legal and practical diffi- 
culties, through an overbroad definition of political advocacy and a 
series of taint rules which can only be characterized as draconian 
in nature. The very constitutionality of OMB's proposal is thus 
called into question. 



163 

Consider for a moment the impact that this proposal would have 
on a small business not unlike the many among our membership. I 
have a direct example in mind. 

The business consists of a company's founder-president, four 
clerical employees and 35 production employees in the back shop. 
A significant source of its orders and profits are derived from a 
contract with the Defense Department. This small company is so 
small that the president must from time to time pitch in with the 
production employees when the need arises. This president hap- 
pens to be on our board of directors at NAM. 

Should the president of this company travel to Washington once 
during the course of a year to attend a NAM policy committee 
meeting or perhaps to meet with his Congressman, his entire 
salary for the year must be excluded from his company's overhead 
for the purposes of the Government contracts; not only that, but 
the salary of his secretary also must be eliminated. 

In his case he takes up one-third of the office space and the four 
ladies take up the other two-thirds. It would mean his office space 
could not be charged to the Government contract because it exceed- 
ed the limits of the "5-percent rule" in the OMB circular. 

This same effect would be accomplished if he contacted his local 
governmental authorities in an attempt to obtain a new traffic 
light outside of his plant. 

Of course, since this person would, under this proposal, be de- 
fined as a political advocate, the entire cost of his building and cer- 
tain items of equipment must also be excluded if their percentage 
occupancy is more than 5 percent of the usable space contained 
therein. 

The only way to avoid this disallowance under the 5-percent rule 
is to move this political advocate and his attendant equipment out 
of the building entirely. 

We must confess that we fail to see the reasonableness or equity 
of such a result on this small businessman. 

Mr. Chairman, this example merely scratches the surface of the 
difficulties inherent in this proposal. In operation, this proposal 
will generate significant cost increases to the Government, to the 
consuming public and, of course, to those directly affected. 

Companies that have access to sophisticated accountants and 
lawyers may be able with great difficulty and expense to create a 
zone of quarantine that will separate a company's political advoca- 
cy from its other operations. These costs will also be borne directly 
by the taxpayer and the consumers. 

Other companies less capable of dealing with this situation will 
simply have to choose either to forego any level of participation in 
the governmental process or any Government contract work. 

To the extent that the former occurs we all lose. To the extent 
that the latter occurs, then the Government again loses through re- 
duced competition, lost jobs and other undesirable economic side ef- 
fects. 

As unintentional as these results may be, they are clearly fore- 
seeable. 

We do not have any specific remedial language to suggest to the 
OMB at this time, but we do believe that there are ways to accom- 



164 

plish its objective by less onerous and less constitutionally suspect 
means. 

A government dedicated to a strong economy and the proposition 
that an informed and politically active citizenry is the best guaran- 
tor of freedom should go forward with regulations of this type only 
after a careful weighing of the costs and the benefits of the change. 

OMB has yet to clearly identify the need for its proposed changes 
and no attempt has been made to quantify the putative benefits 
that will be derived from them. 

This must occur before we should tumble headlong into an un- 
charted area that is fraught with so many practical difficulties. 

Thank you, Mr. Chairman. Mr. Lipkin and I are available to 
answer any questions the subcommittee may have. 

[Mr. Rettgers' prepared statement follows:] 



165 



STATEMENT OP 
FORREST I. RETTGER3, EXECUTIVE VICE PRESIDENT 

OP THE 
NATIONAL ASSOCIATION OP MANUFACTURERS 

G-ood morning, Mr. Chairman. My name is Forrest I. Rettgers 
and I am the Executive Vice President of the National Association 
of Manufacturers (NAM). With me today is Gary D. Lipkin, Assistant 
General Counsel of the NAM. We are most appreciative of the 
opportunity to appear here today to express the concerns of our 
membership on the recently proposed revision to 0MB Circular A-122. 
While Circular A-122 applies only to non-profit organizations, the 
Department of Defense, General Services Administration and the 
National Aeronautics and Space Administration have simultaneously 
proposed identical revisions to their procurement rules for their 
"for profit" contractors. For the sake of convenience, however, we 
refer herein solely to the 0MB proposal. 

NAM is a non-profit, voluntary business association consisting 
of over 12,500 member firms of all sizes from all parts of the 
country. NAM members employ about 85 percent of all employees 
engaged in manufacturing nationwide, and they account for about 80 
percent of our nation's industrial output. Further, approximately 
78 percent of our members are entities that are generally 
considered to be "small business." An additional 158,000 employers 
are represented by other associations that are affiliated with the 
NAM through its Associations Department and the National Industrial 
Council . 



166 



Mr. Chairman, let me make clear at the outset that she NAM is 
not a government contractor and we do not solicit or accept federal 
grants. However, OMB's proposed revisions to Circular A-122 will 
have an indirect effect on NAM as an entity, and a very substantial 
and deleterious impact on a vast segment of our membership. So 
very broad and unrestrained is OMB's proposal that it literally 
toys with fundamental and cherished constitutional rights. So too 
it has generated a furor in Washington and around the country the 
likes of which I have only rarely seen in my many years as an 
active participant in our governmental process. Without question, 
OMB's proposal deserves and requires the closest scrutiny. 

The NAM and other trade associations have spent a great deal 
of time and effort in the last few years encouraging our members to 
develop active public affairs programs. We have done so largely 
because of our strong belief that business entities have First 
Amendment rights not unlike those afforded individuals; and that 
the responsibilities that these rights entail, plus principles of 
good citizenship and simple common sense, require that these rights 
be fully exercised and vigorously defended when threatened. We 
feel that OMB's proposed revisions to Circular A-122 do indeed 
represent a threat to those constitutionally guaranteed freedoms. 

We are not at all unsympathetic to the objective sought to be 
achieved by the 0MB in its proposal: preventing federal funds from 
being used for improper political advocacy. As a general 



167 



proposition, taxpayer dollars should not be used to directly fund 
overt partisan activities or lobbying as those terms are 
traditionally defined and understood. Nor do we contend that there 
have not been past instances of abuse in this area. But 0MB' s 
proposed "cure", when viewed in its totality, may well prove to be 
far worse than the suggested "disease." Our primary concern is 
that in attempting to reach the legitimate goal of avoiding the 
diversion of government funds to political advocacy, the government 
not infringe in an unnecessary, overly burdensome, or 
unconstitutional manner upon the free exercise of treasured 
constitutional rights. 

The proposed revision simply goes too far in its attempt to 
cure a "problem" that, if it does exist, certainly does not call 
for so draconian a solution. For instance, the definition of the 
term "political advocacy" goes far beyond any other definition of 
similar terms like "lobbying" or "partisan activity." The expanded 
definition urged on us by the 0MB includes activities that are 
"political" if at all, in only the most peripheral sense. Such 
things as amicus briefs, dues to a trade association, the costs 
associated with a meeting that has any portion, no matter how 
small, devoted to things political, and items of equipment (e.g., a 
photocopier, a telephone) used in any part for political advocacy 
would be unallowable costs under this proposal because they have 



168 



all been defined by the OMB as new-found types or 
instrumentalities of political advocacy. 

Mr. Chairman, permit me to give you a few real life 
illustrations as to how some of these changes would directly affect 
certain of our members. As a member-led organization, our policies 
on issues are debated and established through a system of policy 
committees that are composed of representatives of our member 
companies. They are often convened in Washington for discussions 
of public policy issues and perhaps then they may meet with elected 
or other government representatives. The activities just described 
would both fall under OMB's new definition of political advocacy. 

In a particular situation that I have in mind, our member 
company consists of the founder-president, four clerical workers, 
and thirty-five other employees who make a product for the 
Department of Defense under a contract that provides the vast bulk 
of this company's work orders and profits for the year. By any 
measure, this is a small business - so small, in fact, that the 
founder-president often takes the place of an absent employee on 
the shop floor. Yet, this individual's sole "political advocacy" 
for the year might well be this trip to Washington. Is it fair or 
reasonable to disallow his entire annual salary from hi3 company's 
overhead under the contract because of this one trip? Is it 
equitable to force him to remove himself, his photocopier, hi3 
telephone, etc., to another building if he, as his company's 



169 



"political advocate" is found to occupy more than 5 percent of the 
useable space in his current quarters? 

The NAM, for one, emphatically does not believe that such a 
result is fair or equitable. Nor, with 78 percent of our members 
being small businesses, would this result represent an isolated 
incident. Yet, such would be the direct impact of the proposed 
revision to Circular A-122 . I would suggest that the upshot of 
this could well be the cessation of this individual's and other 
similarly situated individuals' involvement in the political system 
and the NAM. The absence of the input of concerned citizens like 
this is a development that this country can ill-afford and this 
government should not foster. 

Encouraging greater citizen involvement in the political 
process is an oft-stated goal of our system. Indeed, prominent 
figures often bemoan the lack of such involvement. While this is 
not the time or the place to debate the merits of political action 
committees (PACs), few can deny that their existence has brought 
many new faces and players into an active role in the political 
process. In enacting the Federal Election Campaign Act (PECA) and 
approving the regulations promulgated thereunder, Congress 
recognized that there is a very real difference between the funds 
given to a PAC for contribution purposes and those used for its 
operation and administration: while Congress forbade direct 
corporate donations to a PACs treasury for the purpose of making 



170 



contributions to candidates, it specifically permitted corporations 
to use their general treasury funds to underwrite a PAC's 
administrative and operational costs. Clearly, the goal of keeping 
corporate money out of the coffers of political campaigns was not 
compromised, in the judgment of Congress, by allowing corporations 
to use their money to pay for the operation and administration of 
their PACs. 

Apparently, the 0MB has come to a contrary conclusion as it 
has chosen to include these costs in its li3t of items that 
constitute "political advocacy" and cannot be paid for by funds 
derived from government contracts. I emphasize that the money I am 
referring to here does not find its way into a campaign treasury; 
rather, it is used by the corporation to operate and administer a 
means by which its employees - ordinary citizens - can make their 
presence felt in the political system. Again, the 0MB proposal 
could have the unintended side effect of limiting thi3 source of 
citizen input into the political process. 

I believe it should be abundantly clear by now that the 
definition of "political advocacy" adopted by the 0MB here is far 
too broad. The accepted definition, much akin to what is commonly 
considered to be "lobbying," has stood the tests of time and our 
judicial system. It has not been shown to be inadequate. We 
therefore respectfully suggest that the current definition is 
satisfactory and that this new and expanded definition is 






171 



unnecessary. Further, if a new definition is required for some 
reason, it should be developed in a more rational and studied 
manner than that which has been attempted here. 

Intertwined with, and exacerbated by, the overbroad definition 
of the term "political advocacy," are the sweep and potential 
consequences of the list of "unallowable costs" that the proposal 
contains. Permit me to return to my illustration of the small 
business executive that I referred to earlier. As a company 
official, it would be within the ordinary course of business for 
him to engage in a certain amount of so-called "political" 
activities at the local and state, as well as the federal level. 
Often the very well being of a small business and its employees may 
depend on some involvement in government at levels other than 
national, and this proposal would cover such activities at all 
levels of government. It seems patently unfair and alien to our 
system to disallow all of this executive's salary costs if he 
engages in nothing more than, for example, attempts to persuade the 
local county board of supervisors to approve the installation of a 
traffic light at the main gate of his plant. Yet, I would suggest 
that such a ludicrous result is compelled by the existing language 
of the 0MB proposal. 

The wording of the proposal indicates other, equally 
incongruous results. The costs associated with a corporate 
telephone line used for hundreds, even thousands, of purely 



20-644 0—83 12 



172 



business-related calls over the course of a year will be completely 
disallowed if but one call is made on a political topic. A 
photocopier used to make tens of thousands of copies of various 
corporate documents will be disallowed if so much as a single copy 
is made of a document urging political action of some sort. A 
corporate computer, used to keep records and payroll accounts will 
be disallowed if it is programmed to deduct a portion of an 
employee's pay check for a contribution to the company's political 
action committee, even though this use takes up but a fraction of 
the time - a literal microsecond - that the computer is in 
operation. The costs associated with a meeting of corporate 
employees or shareholders would be disallowed- if so much as a 
single statement urging those in attendance to "vote in the next 
election" was made. This list, Mr. Chairman, goes on and on ad 
infinitum . I would strongly suggest that this Committee urge the 
0MB to give some careful and deliberate thought to the breadth of 
their list of unallowable costs in view of these easily foreseen, 
and perhaps unintended, consequences. It is our belief that, 
operated in tandem, the scope and inherent vagueness of the terms 
"political advocacy" and "unallowable costs" can easily become a 
giant pincers for the stifling of the free and unfettered exercise 
of First Amendment rights. 

While the practical impact of this proposal on political 
advocacy programs is substantial, a more basic concern is that of 



173 



ita effect on the fundamental First Amendment rights of free speech 
and political association. Mr. Chairman, the NAM has reviewed the 
Supreme Court cases cited by the 0MB in the Summary and Appendix 
portions of its Federal Register notice announcing this revision at 
48 Fed. Reg 3348-3351 (January 24, 1983), and, frankly, we do not 
agree that these cases answer, or are responsive to, the difficult 
and pressing constitutional problems raised by this proposal. 

The 0MB proposal deals with the "problem of the use of federal 
funds for political advocacy . . .". In contrast, the cases cited 
by the 0MB deal with varying forms of government-sanctioned 
coercion of individuals to subscribe, or contribute, to a 
particular political ideology or cause on pain of losing some sort 
of government conferred benefit: 

Abood v. Detroit Board of Education , 431 U.S. 209 (1977), held 
that the government may not, without seriously inhibiting the 
free exercise of First Amendment rights, force public school 
teachers to relinquish their right to freely choose the 
political causes with which they wish to associate or 
contribute to as the price of holding their jobs; 

Vest Virginia State Board of Education v. Barnette , 319 U.S. 
624 (1943), held that a public school student could not, on 
pain of expulsion, be forced to salute the flag; 



174 



Wooley v. Maynard , 430 U.S. 705 (1977), held that a state 
could not compel its citizens to display the state motto on 
their automobile license plates on pain of imprisonment when 
to do so would violate the citizens' religious beliefs; and, 

Elrod v. Burns , 427 U.S. 347 (1976), a case involving 
patronage dismissals, held that the government could not force 
a public employee in a non-political job to give up his right 
to certain political associations and beliefs as the price of 
holding his job without seriously inhibiting the exercise of 
First Amendment rights. The plurality opinion further notes 
that the loss, or threat of loss, of "First Amendment freedoms 
for even minimal periods of time, unquestionably constitutes 
irreparable injury." Id., at 373, citing New York Times Co. 
v. United States , 403 U.S. 713 (1971). 

The 0MB would have done well to consider other cases which are 
perhaps more relevant to the constitutionality of the proposal at 
issue here. For instance, California Motor Transport Co. v. 
Trucking Unlimited , 404 U.S. 508, 510-511 (1972), New York Times 
Co. v. Sullivan , 376 U.S. 254, 270 (1964), and NAACP v. Button , 371 
U.S. 415 (1963), all make clear that many of the types of political 
advocacy that are at issue here are protected by the First 
Amendment. It is a well-settled axiom of constitutional law that 
if such rights are to be circumscribed, it must be done in a manner 



175 



that does so to the minimum extent possible. We suggest that this 
principle has been all but ignored here. 

Other rulings of the Supreme Court make clear that "even 
though a person has no right to a valuable government benefit," 
such as a government contract or grant, "and, even though the 
government may deny him the benefit for any number of reasons," the 
government, " may not deny a benefit to a person on a basis that 
infringes his constitutionally protected interests - especially his 
interest in freedom of speech." Perry v. Sindermann , 408 U.S. 593 
(1972) (emphasis supplied); accord , McDaniel v. Paty , 435 U.S. 618 
(1978). This is true "however slight the inducement to the 
individual to forsake these rights." Blrod , at 358 n. 11 (1976) 
(plurality opinion) . 

It is well-settled that government action which "chills," even 
if it does not expressly prohibit, the exercise of an individual's 
First Amendment rights is unconstitutional; the principle here is 
that the government may not put so high a price on the exercise of 
a constitutional right that few will choose, or have the ability, 
to so do. See Miami Herald Publishing Co. v. Tornillo , 418 U.S. 
241 (1974); D ombrowski v. Pfister , 380 U.S. 479 (1965). Supreme 
Court decisions have consistently held that legislative 
restrictions on political advocacy are "wholly at odds with the 
guarantees of the First Amendment." Buckley v. Valeo, 424 U.S. 1, 



176 

50 (1976), citing Mills v. Alabama , 334 U.S. 214. (1966), and Miami 



Herald Publishing Co. v. Tornillo , 413 U.S. 241 (1974). A law 
which restricts speech or association on the basis of its content, 
as in advocating a political point of view, must be closely and 
carefully scrutinized to determine whether it impermissibly 
"chills" an individual's First Amendment rights. In Buckley , for 
example, the Supreme Court held that the primary effect of certain 
campaign independent expenditure limitations was the restriction of 
the quantity of political speech and that "[these] restrictions, 
while neutral as to the items expressed, limit political expression 
'at the core of our electoral process and of the First Amendment 
freedoms.'" Buckley at 39, citing Williams v. Rhodes , 393 U.S. 23, 
32 (1968). 

Mr. Chairman, we have not had the opportunity to conduct an 
extensive and/or exhaustive review of all of the constitutional 
ramifications of the revision proposed by the 0MB. We do believe, 
however, that the cases cited above indicate the potential 
dimensions of the constitutional problems inherent in this 
proposal. We suggest that these cases can lead to the conclusion 
that, at the very least, more thoughtful consideration must be 
given to the possibility that the free exercise of First Amendment 
rights will be seriously compromised by the operation of the 
proposed revision to Circular A-122 . Covered entities may well be 
forced to choose between accepting federal contracts and freely 



177 



exercising their constitutional rights. Such a result must not be 
taken lightly and demands close and careful scrutiny. 

The 0MB has itself recognized the potential constitutional 
dimensions of this proposal and has taken great pains to 
characterize its effort as one that will "enhance" First Amendment 
freedoms. I submit that by increasing the costs and difficulties 
of engaging in First Amendment activities so greatly, and thereby 
increasing the likelihood that some entities will not choose to 
exercise them, the 0MB has done exactly the opposite. These 
freedoms must be vigorously protected, "not only against 
heavy-handed frontal attack but also from being stifled by more 
subtle government interference." Bates v. Little Rock , 361 U.S. 
516 (I960). As the Supreme Court has further stated: 

In the domain of the indispensable liberties of speech, press, 
or association, abridgment of such rights, even though 
unintended, may inevitably follow from varied forms of 
governmental action. NAACP v. Alabama ex rel. Patterson , 357 
U.S. 449 (1958) (emphasis supplied). 

Again turning to the potential effects of this forced election 
in the business world, let me make the following observations. 
Complying with this proposal as it now stands, and continuing a 
meaningful and effective political advocacy program will be quite 
costly and cumbersome. If a business entity wishes to continue 



178 



its so-called advocacy activities as defined by the 0MB, it will be 
forced to take certain steps to assure that such advocacy does not 
"infect" or "taint" the equipment and facilities used in the 
fulfillment of its contractual obligations to the government so as 
to prevent them from being included as costs under the government 
contract. The best way to do this would probably be by purchasing 
separate equipment that will be used solely for political advocacy 
purposes. The additional costs that this would impose will most 
assuredly be passed on in some fashion to the consumer-taxpayer 
that the 0MB claims it is trying to protect here. 

This proposal is not cost free to the government either. If 
the government contractor chooses to continue its political 
advocacy and its government contracting business, it may well 
choose to purchase or devote certain equipment solely to the 
fulfillment of its government business. Since the Circular, as 
revised, will prevent these items from being charged to anything 
other than government business, the price of the goods furnished 
will rise, thereby increasing the cost of the contract to the 
government. Again, the taxpayer will pay the ultimate price. At a 
time when every effort is being made to cut or otherwise control 
government expenditures, it seems somewhat self-defeating to 
propose a change in procurement rules that will, at the very least, 
serve as a means of increasing these very expenditures. 



179 



It may well be that some of the larger government contractors 
covered by this proposal will be able to "finesse" their way around 
it through complicated and unique accounting procedures, or by 
creating a completely sterile cocoon within which all of their 
political advocacy activities would be concentrated. But this sort 
of effort at compliance also will carry a stiff price, and we 
seriously question whether these added costs will be worth putative 
benefits that have yet to be precisely identified or quantified in 
any meaningful way. These added costs will be paid, initially, by 
the contractor and the government, and eventually, by the taxpayer. 

In addition, there may well be certain contractors, especially 
the smaller ones, who may simply decide to forego government 
contract work entirely. This too can lead to higher prices due to 
reduced competition, and can have other less than desirable 
economic side-effects including reduced employment opportunities. 
Par from setting up a "wall of separation" between government money 
and political advocacy, this revision will create a "zone of 
quarantine" around government contracts into which entry will be 
costly and limited to only the few who are willing to pay those 
costs and risk a federal inquiry into their entire public affairs 
function. 

A hard choice is thus presented to a potential federal 
contractor. The exercise of a fundamental constitutional right - 
political advocacy or petitioning the government for a redress of 



180 



grievances - may have to be circumscribed or surrendered in order 
to freely bid on government contracts. The alternative, foregoing 
all government contract work, should not be encouraged by the 
government in this or any other fashion. The end result here is 
the well-known "chilling effect" on the exercise of treasured 
freedoms. We would urge that the 0MB give some consideration to 
such important consequences. 

While we do not have any specific remedial language to suggest 
at this time, the NAM believes that there are ways to reach the 
0MB' s stated objective by less onerous and constitutionally suspect 
means. However, since any regulation in this area potentially 
impinges on fundamental rights, careful and deliberate scrutiny 
will be required. In any event, nothing should be done unless and 
until the views of constitutional scholars, affected organizations, 
other interested parties, and the Justice Department are made 
known. The broad and vague definition of political advocacy and 
the resulting extensive list of unallowable costs are serious, and 
in our view, potentially fatal flaws in this proposal. More 
importantly, a government dedicated to a strong economy and the 
proposition that an informed and politically active citizenry is 
the best guarantor of freedom should go forward with regulations of 
this type only after thorough analysis and careful thought. 

When Congress, the regulatory agencies, and the courts have 
acted in the analogous areas of lobbying regulation, ethics in 



181 



government statutes, and federal election laws, they have done so 
in response to a definite, well publicized, and amply documented 
need after extensive public debate and comment. In all of these 
instances, clear and convincing evidence that the then-existing 
rules were inadequate was presented. None of these steps have been 
taken here. We respectfully suggest that something more than a 
bald assertion, with no evidence or documentation presented, that 
"the problem of the use' of federal funds for political advocacy by 
grantees and contractors has been identified . . . " is needed 
before so drastic a change with such serious ramifications is 
proposed and adopted. This is especially the case when the 
potential for the infringement of basic constitutional rights is so 
much in evidence. 



182 

Mr. Brooks. Thank you very much for a fine statement; defini- 
tive and useful. 

I might ask you just one question. The OMB circular would pro- 
hibit contractors and grantees from contributing money, including 
dues, to any organization that had political advocacy as a substan- 
tial organizational purpose or that spent $100,000 or more per year 
on political advocacy. 

Would this provision disqualify many of your members from be- 
longing to your association? 

Mr. Rettgers. It certainly would, Mr. Chairman. As you know, 
NAM spends a great deal of its time on political advocacy. We rep- 
resent our members for just that purpose here in Washington. I 
guess we could say that it would inhibit us. As I told Mr. Horowitz, 
if he was wrong at the end of the year he could say he was sorry; 
at the end of that same year, if I were wrong, I would be out of 
business. 

Mr. Brooks. I appreciate your comments. 

Mr. Horton? 

Mr. Horton. Mr. Rettgers, your testimony is very important. 

Mr. Rettgers. Always happy to see you, Mr. Horton. You have 
been a friend of business for years and years along with the chair- 
man. 

Mr. Horton. Thank you very much. 

I think your testimony will help us to correct this problem that 
OMB has created. You have been here all morning so you have 
heard the efforts of the chairman and me to make certain that 
they understand downtown that we do not want this kind of regu- 
lation. 

Mr. Rettgers. If OMB had been there one-third of that time they 
would know there is no way it will go away. 

Mr. Horton. Thank you. 

Mr. Brooks. Thank you very much. 

Our next witness is George A. Daoust, Jr., executive director of 
the National Council of Technical Service Industries. His organiza- 
tion represents two dozen of the largest defense contractors, includ- 
ing Boeing, Northrup, and Lockheed. 

Prior to joining NCTSI he worked for Planning Research Corp. 
and Stanford Research Institute. Dr. Daoust has also served as 
Deputy Secretary of Defense for Manpower Research and Utiliza- 
tion. 

Dr. Daoust is a graduate of the U.S. Military Academy and re- 
ceived his Ph. D. in international relations from Georgetown Uni- 
versity. He is married to a lovely lady named Lucy. 

Doctor, we are delighted to have you. Proceed with your re- 
marks. 

STATEMENT OF GEORGE A. DAOUST, JR., EXECUTIVE DIRECTOR, 
NATIONAL COUNCIL OF TECHNICAL SERVICE INDUSTRIES 

Mr. Daoust. It is a great pleasure to be here. Thank you. 
I request that my statement be included in the record in toto, 
please. 
Mr. Brooks. Without objection, it is so ordered. 
The gentleman is recognized. 



183 

Mr. Daoust. I certainly appreciate the opportunity to speak on 
this issue. As you mentioned, sir, we are 23 companies providing 
technical services under contract to the Federal Government. That 
is a common factor that pulls them together into the council. 

I only thought I was concerned about this issue before I read the 
testimony that Mr. Wright inserted into the record this morning. If 
after all this reaction they still hang on to the framework of this 
revision we are indeed in serious trouble. 

This broad net of the revised Circular A- 122 covers a lot of tech- 
nical issues. For instance, fixed price versus cost plus fee contracts; 
theoretically this would only apply on a cost plus fee contract. 

On a fixed price you should be able to go in, you contract to do so 
much work for a certain amount of money. But in actual practice 
the Defense auditors may well look at your fee structure or over- 
head structure for awarding that fixed price contract. 

So it is a lot broader than it would appear. 

At the same time it is discriminatory in that it applies only to 
those particular types of contracts. 

Almost everything in this revision is pointed toward something 
that isn't broke. The whole excuse seems to be that the Govern- 
ment is not able to enforce laws and regulations on lobbying and 
such activities. 

To issue such a blanket regulation to try to correct something 
that they can't fix already is very wrong. 

The idea of contamination that is in here, that one action will 
contaminate the overhead costs of the individual, or the facility or 
the transportation for a year. Why a year? Why not an hour for an 
hour or a week or a month or 2 years? 

It is absolutely arbitrary and it is punitive. This is the major 
problem, I believe. 

Rather than disallowing the particular activities, and this is 
mixed up later again in Mr. Wright's statement where he starts 
getting confused over the fact that what we are talking about here 
is not disallowing the funding, not having the Government pay for 
something, but having the Government not pay for anything that 
the individual does or the piece of equipment is used for. 

This punitive aspect is even worse than most of the other terms. 

It is very unbalanced. The discussion this morning talked about 
it being balanced, applying to everybody. They don't apply to 
unions. 

I am not recommending that. I don't want it to apply to anyone. 
But they are exempt. 

There is a term used frequently by Members of both parties, "gi- 
pogob," "get into politics or get out of business." 

OMB is reversing that. They are saying, "If you are in politics 
you are going to be out of business with the Federal Government." 

The accounting system changes that would be required under 
this version or what appears to be the new revised version coming 
out are going to be very expensive, complex; they will probably be 
unworkable and may well be unallowable by the Government audi- 
tors, because when you start setting up a couple of different over- 
head accounting systems, trying to separate these things, you run 
into a lot of other regulations. 



184 

Trade associations don't fare well under the revised regulations. 
It says in here quite clearly Mr. Wright intends that trade associ- 
ations will still be proscribed in the same terms. 

A wide range of companies belong to trade associations. It is one 
way small companies and small segments of society can be repre- 
sented with a fairly loud voice. To ban them this way, to preclude 
them from contributing to associations because they have a grant 
or contract from the Government is very discriminatory. 

Our broad political and economic actions which form our society 
would be closed to all companies and associations that are covered 
by this circular. This broad political-economic system that we work 
in requires the input from a lot of people that do not have a Wash- 
ington representative and are going to keep you from having to 
read letters from every one of your constituents who has a prob- 
lem. 

The complexity of the various laws, IRS regulations, Federal 
Election Commission rules, acquisition regulations, are pretty bad. 

The role of Government-sponsored councils, advisory groups, tes- 
tifying like this, all these ancillary actions are fairly complex. 

The political situation, many States allow direct contributions 
from corporations to political funds. This is a complex area. To try 
to establish one overall blanket and say this is how we are going to 
cover all of this, we aren't going to worry about the details, we are 
going to issue a rule that will cover everything and take care of it, 
is overly simplistic and unworkable. 

The enforcement of the lobbying laws, compliance of the perma- 
nent regulations that we have now, needs another approach. 

The fact that the Government can't enforce them is not reason to 
layer another set of regulations on top of what we already have. 

As several members of this subcommittee and witnesses recom- 
mended, this revision should be withdrawn entirely and start over 
with a new concept: What are the objectives? What is being 
sought? What do they want to do? Start from that in a systematic 
fashion and try to get there. 

Mr. Wright says in his testimony there is no uniform comprehen- 
sive policy on costs for political advocacy. I hope there never will 
be. 

If you can roll everything that falls within that mantle into one 
clear brief statement, albeit doing it in 2 weeks, it is going to take 
more genius than was demonstrated in the initial revision. 

Thank you. 

[Mr. Daoust's prepared statement follows:] 



185 



STATEMENT OF 

GEORGE A. DAOUSI JR. 

EXECUTIVE DIRECTOR 

NATIONAL COUNCIL OF TECHNICAL SERVICE INDUSTRIES 

MR, CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE: 

I APPRECIATE THE OPPORTUNITY TO APPEAR BEFORE YOU TODAY ON 
THE PROPOSED REVISION TO OFFICE OF MANAGEMENT AND BUDGET (OMB) 
CIRCULAR A-122. 

AS IS STATED IN THIS REVISION, SIMILAR PROVISIONS HAVE BEEN 
PROPOSED FOR CIVILIAN AND DEFENSE CONTRACTORS THROUGH LETTERS 
FROM THE DEPARTMENT OF DEFENSE, THE NATIONAL AERONAUTICS AND SPACE 
ADMINISTRATION AND THE GENERAL SERVICES ADMINISTRATION. THESE 
AGENCY ACTIONS, WHICH ARE IDENTICAL TO THOSE INCLUDED IN THE OMB 
REVISION, ARE THE REGULATIONS WHICH ARE OF CONCERN TO INDUSTRY. 

I AM THE EXECUTIVE DIRECTOR OF THE NATIONAL COUNCIL OF TECHNICAL 
SERVICE INDUSTRIES (NCTSI), WHICH IS AN ASSOCIATION OF 23 COMPANIES 
WHICH PROVIDE TECHNICAL SERVICES TO THE FEDERAL GOVERNMENT (MEMBER- 
SHIP LIST ATTACHED). THESE TECHNICAL SERVICES ARE COMMERCIAL AND 
INDUSTRIAL TYPE ACTIVITIES WHICH ARE PERFORMED UNDER CONTRACT TO 
THE GOVERNMENT. ESSENTIALLY THESE CONTRACTS ARE OF TWO TYPES: 
EITHER AT A FIXED PRICE OR ON A COST PLUS FEE ARRANGEMENT. 

THE PROVISIONS OF REVISED OMB CIRCULAR A-122 APPLY ONLY TO 
GOVERNMENT CONTRACTS OF THE COST PLUS FEE TYPE. THUS, A COMPANY 
PERFORMING ESSENTIALLY IDENTICAL WORK FOR A PRIVATE SECTOR CLIENT, 
A GOVERNMENT CLIENT ON A FIXED PRICE CONTRACT AND A GOVERNMENT 
COST PLUS FEE CONTRACT WOULD HAVE TO ESTABLISH A SEPARATE ACCOUNTING 
SYSTEM FOR THE THIRD TYPE OF CONTRACT IN ACCORDANCE WITH THIS 
CIRCULAR. THIS IS THE FIRST PROBLEM WITH THIS CIRCULAR, IT IS 
DISCRIMINATORY IN ITS APPLICATION. 



186 



I WOULD LIKE TO POINT OUT THAT WHILE I AM ENDEAVORING TO BE 
AS PRECISE AS POSSIBLE, THIS IS SUCH A TECHNICALLY COMPLICATED 
SUBJECT THAT ANY STATEMENT IS SUBJECT TO MODIFICATION AND/OR 
EXCEPTIONS. FOR EXAMPLE, WHILE UNDER A FIXED PRICE CONTRACT THE 
CONTRACTOR THEORETICALLY BIDS TO PROVIDE A CERTAIN PRODUCT OR 
SERVICE FOR A CERTAIN AMOUNT OF MONEY, IN PRACTICE THE GOVERNMENT 
CONTRACTING PEOPLE MAY EXAMINE HIS OVERHEAD RATE AND OTHER 
COMPONENTS OF HIS PRICE PRIOR TO AWARDING THE CONTRACT. IN THIS 
CASE NON-COMPLIANCE WITH OMB CIRCULAR A- 122 COULD INFLUENCE THE 
AWARD OF A FIXED PRICE CONTRACT. 

THERE ARE EXTENSIVE LAWS AND REGULATIONS WHICH CONTROL 
POLITICAL ADVOCACY, LOBBYING, LEGAL COSTS, LEGISLATIVE LIAISON 
AND THE OPERATION OF POLITICAL ACTION COMMITTEES, (PAC'S) TO 
MENTION ONLY A FEW OF THE ACTIVITIES THIS PROPOSED CIRCULAR 
ADDRESSES. FROM THE VIEWPOINT OF INDUSTRY THIS CIRCULAR ISOLATES 
COSTS PLUS FEE CONTRACTS AND REQUIRES ENTIRELY DIFFERENT ACCOUNTING 
PRACTICES FOR THE TYPES OF ACTIVITIES I JUST MENTIONED, WHICH ARE 
LUMPED TOGETHER AS "POLITICAL ADVOCACY". OVERHEAD COSTS, WHICH 
MUST BE IDENTIFIED IN A COST PLUS FEE CONTRACT, ARE THE RATIONALE 
USED UNDER THIS CIRCULAR TO PRECLUDE THE OTHERWISE IMPARTIAL 
APPLICATION OF LAWS AND REGULATIONS RELATING TO POLITICAL ADVOCACY 
TO A GOVERNMENT CONTRACTOR. 

THIS IS THE NEXT PROBLEM WITH THE PROPOSED CIRCULAR, IT IS 
ATTEMPTING TO PREVENT ACTIVITIES WHICH IN MOST CASES ARE ALREADY 
UNALLOWABLE OR EVEN ILLEGAL UNDER EXISTING LAWS AND REGULATIONS. 
THE FAILURE OF THE GOVERNMENT TO ADEQUATELY ENFORCE CURRENT LAWS 
AND REGULATIONS IS A POOR REASON FOR A SWEEPING DISCRIMINATORY 
PROHIBITION ON POLITICAL ACTIVITY AS IS PROPOSED IN THIS CIRCULAR. 



187 



LOBBYING COSTS ARE NOT NOW ALLOWABLE ON GOVERNMENT CONTRACTS, 
INCLUDING FEES TO INDIVIDUALS OR FIRMS ENGAGED IN LOBBYING. 

CORPORATE CONTRIBUTIONS TO PAC'S ARE NOT ALLOWED BY THE 
FEDERAL ELECTION COMMISSION, ALTHOUGH ADMINISTRATIVE COSTS OF 
SUCH COMMITTEES CAN BE FUNDED BY THE COMPANY. THIS OMB REVISED 
CIRCULAR DENIES COMPANIES AND INDIVIDUALS WORKING ON GOVERNMENT 
COST PLUS FEE CONTRACTS THE POLITICAL FREEDOM AUTHORIZED BY 
THE FEDERAL ELECTION COMMISSION. THIS IS ANOTHER PROBLEM WITH 
THIS PROPOSED CIRCULAR, IT APPEARS TO BE CHANGING LEGAL RIGHTS 
WITHOUT BENEFIT OF LEGISLATION. 

THE CONCEPT OF CONTAMINATION BY POLITICAL ADVOCACY IS NOT 
SPELLED OUT AS CLEARLY IN THE NOTICE PRINTED IN THE FEDERAL REGISTER 
ON CIRCULAR A-122 AS IT HAS BEEN EXPLAINED IN THE MANY MEETINGS 
WITH OMB PERSONNEL. HOWEVER, IT APPEARS CLEAR THAT OMB INTENDS 
THAT ONE ACT OF POLITICAL ADVOCACY WOULD PRECLUDE AN INDIVIDUAL 
FROM BEING CHARGED TO OVERHEAD ON A GOVERNMENT CONTRACT FOR A YEAR. 
THE OTHER CONTAMINATION CONCEPTS EXPAND THE DISALLOWAL OF CHARGES 
FOR EQUIPMENT, TRANSPORTATION, SPACE ETC. THROUGH ANOTHER CRITERIA 
UNDER WHICH, WHEN 5% OF A FACILITY HAS BEEN CONTAMINATED THE ENTIRE 
FACILITY IS DISALLOWED. 

I WOULD LIKE TO MAKE IT CLEAR THAT THIS DISALLOWANCE OF COSTS 
IS PUNITIVE, IN THAT ALL COSTS FOR THE ARBITRARY PERIOD OF ONE YEAR 
CANNOT BE CHARGED AS THE RESULT OF ONE ACTION WHICH CAN BE AS 
HARMLESS AS RECOMMENDING A BALANCED BUDGET TO YOUR CONGRESSMAN. 
LOBBYING IS NOT NOW AN ALLOWABLE OVERHEAD CHARGE. IF A PERSON 
WORKING FOR A GOVERNMENT CONTRACTOR IS ENGAGED IN LOBBYING UNDER CURRENT 
REGULATIONS, NO PORTION OF THE TIME SO SPENT, TRANSPORTATION, 



20-644 0—83 13 



188 



COMMUNICATIONS OR OTHER EXPENSES INVOLVED CAN BE CHARGED TO OVER- 
HEAD. 

HOWEVER, UNDER THE PROPOSED CIRCULAR ALL OVERHEAD CHARGES 
FOR EVERY INDIVIDUAL WOULD BE DISALLOWED FOR ONE YEAR! HOW OR WHY 
AN ARBITRARY ONE YEAR PENALTY WAS SELECTED, RATHER THAN A WEEK, 
MONTH, TWO YEARS OR ANY OTHER TIME HAS NOT BEEN EXPLAINED. THE 
CLEAR INTENT TO PENALIZE ANY POLITICAL ADVOCACY, RATHER THAN SIMPLY 
NOT HAVE IT CHARGED TO A GOVERNMENT CONTRACT, IS UNDERSTANDABLY 
THE MAJOR FAULT WITH THIS PROPOSAL REVISION. THE INTENT SEEMS TO 
BE TO DRIVE INDUSTRY COMPLETELY OUT OF POLITICS. BY THIS, I MEAN 
INDUSTRY AS AN ENTITY. 

THIS WOULD UNBALANCE THE POLITICAL EQUATION. IT SHOULD BE 
NOTED THAT THIS PROPOSED CIRCULAR EXEMPTS LABOR UNIONS SO THAT 
THEIR POLITICAL ACTIVITIES WOULD BE UNCHANGED. FULL PARTICIPATION 
IN A POLITICAL ACTION COMMITTEE WOULD DISALLOW ALL OVERHEAD COSTS 
FOR A COMPANY WITH COST PLUS FEE CONTRACTS. WHILE THE PUBLISHED 
NOTICE STATES THAT FIRMS CAN ENGAGE IN POLITICAL ADVOCACY AND 
STILL RECEIVE GOVERNMENT CONTRACTS, IT ESSENTIALLY REQUIRES THAT 
THEY HAVE EMPLOYEES AND FACILITIES FOR ANY POLITICAL ADVOCACY 
WHICH ARE SEPARATE FROM THOSE WORKING ON THE CONTRACT. SO, IF 
YOU WORK ON A GOVERNMENT CONTRACT, YOU CANNOT PARTICIPATE IN YOUR 
COMPANY PAC AND HAVE YOUR OVERHEAD CHARGES ALLOWED. 

SEVERAL SENATORS AND REPRESENTATIVES HAVE USED THE PHRASE 
GIPOGOOB WHEN ADDRESSING INDUSTRIAL GROUPS. THIS STANDS FOR 
"GET INTO POLITICS OR GET OUT OF BUSINESS". IT SEEMS THAT OMB NOW 
INTENDS TO REVERSE THIS CONCEPT, AND EXCLUDE BUSINESS FROM POLITICS. 



189 



ANOTHER MAJOR PROBLEM IS CREATED BY THE NEED FOR A NEW ACCOUNT- 
ING SYSTEM TO IDENTIFY ALL OF THE PEOPLE, EQUIPMENT AND SPACE 
INVOLVED IN POLITICAL ADVOCACY; AND THEN COMPUTE THE PERCENTAGES 
OF CONTAMINATED SPACE SO AS TO ASCERTAIN WHENEVER 5% IS EXCEEDED. 
NO LONGER WILL A TIME CARD SUFFICE; A SINGLE PHONE CALL AFTER 
WORKING HOURS COULD ELIMINATE AN INDIVIDUAL, HIS OFFICE AND 
PERHAPS THE ENTIRE BUILDING FROM OVERHEAD COSTS FOR A YEAR. 
THIS IS AN EXTREME EXAMPLE, BUT CIRCULAR A-122 CALLS FOR EXTREME 
ACTIONS. 

IT IS ALWAYS EASY TO SAY THAT A PARTICULAR LAW, REGULATION 
OR PROGRAM WILL HAVE DRASTIC RESULTS; THAT IT IN EFFECT WILL BE 
THE STRAW THAT BREAKS THE CAMELS BACK. WHILE OMB CIRCULAR A-122 
MAY OR MAY NOT SO QUALIFY ON GENERAL GROUNDS, IN ONE ASPECT IT 
SEEMS TO BE POTENTIALLY QUITE DESTRUCTIVE. SINCE THIS CIRCULAR 
ESSENTIALLY APPLIES ONLY TO COST PLUS FEE CONTRACTS TO THE GOVERN- 
MENT, ANY COMPANY DOING A SMALL PERCENTAGE OF SUCH WORK OR A 
COMPANY WHICH CONSIDERS ITS GOVERNMENT WORK TO BE OF MARGINAL 
PROFITABILITY MAY DECIDE TO DROP SUCH WORK BECAUSE OF THE 
ACCOUNTING PROBLEMS. CERTAINLY ESTABLISHING A SEPARATE NON- 
POLITICAL ORGANIZATION WHICH CANNOT PARTICIPATE IN THE CORPORATE 
OVERHEAD IS A MAJOR PROBLEM. A SEPARATE ACCOUNTING SYSTEM AND 
OVERHEAD RATE FOR GOVERNMENT COST PLUS FEE CONTRACTS WILL BE 
EXPENSIVE AND MAY BE DISALLOWED BY GOVERNMENT AUDITORS. 

THERE IS ALSO THE PROBLEM OF MEMBERSHIP IN TRADE ASSOCIATIONS, 
SUCH AS NCTSL WE WERE TOLD THAT TRADE ASSOCIATION DUES WOULT NOT 
BE ALLOWABLE AND THAT IF TRADE ASSOCIATIONS WERE NOT INVOLVED IN 
POLITICAL ADVOCACY NO ONE SHOULD JOIN THEM ANYWAY. ASIDE FROM 



190 



DIRECT LOBBYING, WHICH IS ALREADY STRICTLY CONTROLLED UNDER 
FEDERAL ELECTION COMMISSION AND TAX-EXEMPT LEGISLATION, MOST 
ASSOCIATIONS PROVIDE A FORUM AND CONCENSUS UNDER WHICH THE VIEWS 
OF THEIR MEMBERS ARE MADE KNOWN TO THE EXECUTIVE AGENCIES. THERE 
ARE A VAST NUMBER OF RULES AND REGULATIONS, SUCH AS THIS REVISION 
OF CIRCULAR A-122 WHICH REQUEST INDUSTRIES COMMENTS. ASSOCIATIONS 
HELP TRANSMIT THE REQUEST TO INTERESTED COMPANIES AND DEVELOP A 
RELATIVE CONSENSUS IN RESPONSE. ASSOCIATIONS ALSO FREQUENTLY 
PARTICIPATE IN MEMBERSHIP ON PANELS, ADVISORY COUNCILS AND COUNTLESS 
OTHER POLITICAL/ECONOMIC ACTIVITIES WHICH HELP SHAPE OUR SOCIETY. 
FOR THE SMALL COMPANY EVEN MORE THAN THE LARGE ONES, ASSOCIATIONS 
PERMIT PARTICIPATION IN THE BROAD RANGE OF POLITICAL/ECONOMIC 
ACTIVITIES WHICH DECIDE HOW OUR COUNTRY FUNCTIONS. TO DENY THIS 
PARTICIPATION OR TO PENALIZE A COMPANY FOR PARTICIPATING IN SUCH 
ACTIVITIES IS UNJUST. ASSOCIATION MEMBERSHIP FREQUENTLY IS THE 
MOST ECONOMICAL WAY FOR A COMPANY TO EXPRESS THEIR VIEWS ON VITAL 
NATIONAL ISSUES. IT CERTAINLY IS A NORMAL COST OF DOING BUSINESS, 
REGARDLESS OF GOVERNMENT OR PRIVATE SECTOR CLIENTS. 

MANY STATES AUTHORIZE CORPORATE POLITICAL CONTRIBUTIONS 
WHICH ARE, NEEDLESS TO SAY, NOT CHARGEABLE TO GOVERNMENT OVERHEAD. 
THE FEDERAL ELECTION COMMISSION PERMITS PAC SOLICITATION OF FUNDS 
FROM SENIOR MANAGEMENT PERSONNEL UNDER ONE RULE AND SOLICITATION 
OF ALL EMPLOYEES AND SHAREHOLDERS UNDER ANOTHER. 

I MENTION THESE ASPECTS TO SHOW THAT OUR COMPLEX POLITICAL 
ENVIRONMENT DOES NOT PERMIT A SIMPLE SOLUTION. THERE CAN BE NO 
PANACEA WHICH WILL EQUITABLY SORT OUT UNALLOWABLE ACTIVITIES, 
APPLY HARSH PENALITIES AND PERMIT EQUAL PARTICIPATION IN OUR 
POLITICAL PROCESSES. 



191 



IT IS EASY TO SAY THAT ANYONE WORKING ON CONTRACT FOR THE 
FEDERAL GOVERNMENT SHOULD NOT BE ALLOWED TO USE FEDERAL FUNDS 
FOR POLITICAL ADVOCACY. HOWEVER, SALARY PAID TO INDIVIDUALS CAN 
BE USED ANY WAY THEY WISH. AND, A CORPORATION HAS INDIVIDUAL STATUS 
UNDER OUR LAW. FURTHERMORE, THIS CIRCULAR WOULD PREVENT A 
CORPORATION FROM USING FUNDS AN INDIVIDUAL EARNED FROM THE PRIVATE 
SECTOR IF THAT INDIVIDUAL ALSO WORKED ON A GOVERNMENT CONTRACT. 

THIS DENIAL OF NORMAL POLITICAL /ECONOMIC PARTICIPATION WITH 
SUCH STRINGENT PENALTIES IS WRONG. IF THIS CIRCULAR WAS PROPOSED 
BECAUSE THE CURRENT UNCOMPLICATED LAWS AND REGULATIONS ARE 
CONSIDERED TO BE UNWORKABLE BY THE GOVERNMENT, IMAGINE WHAT WILL 
WILL RESULT FROM CIRCULAR A-122. 

WHAT IS FAIR AND EQUITABLE? CURRENTLY LOBBYING COSTS ARE 
NOT ALLOWABLE. BUT LOBBYING, PAC'S PARTICIPATION IN THE REGULATORY 
PROCESS AND THE FULL SPECTRUM OF POLITICAL ACTION CAN BE CONDUCTED 
BY A CORPORATION IF THESE COSTS ARE NOT CHARGED TO CONTRACT. WOULD 
THE PROVISIONS OF OMB CIRCULAR A-122 APPLY ONLY TO THE PRIME 
CONTRACTOR OR TO SUBCONTRACTORS AS WELL? WHAT WOULD BE THE 
LIABILITY OF A MAJOR DEFENSE CONTRACTOR WITH TENS OF THOUSANDS OF 
SUBCONTRACTORS? 

THIS PROPOSED REVISION OF OMB CIRCULAR A-122 WOULD BE A 
DISASTER FOR INDUSTRY AND FOR INDUSTRIAL TRADE ASSOCIATIONS. WHERE 
ABUSES EXIST IN CURRENT LAWS AND REGULATIONS REMEDIAL ACTION SHOULD 
BE SOUGHT. BUT WE SHOULD NOT ARBITRARILY EXCLUDE THE INDUSTRY 
SUPPORTING THE CIVILIAN AND MILITARY AGENCIES OF OUR GOVERNMENT 
FROM THE VAST ARRAY OF POLITICAL/ECONOMIC ACTIVITIES THAT SHAPE 
OUR SOCIETY. 



192 




CORPORATIONS CURRENTLY MEMBERS 
OF 
THE NATIONAL COUNCIL OF 
TECHNICAL SERVICE INDUSTRIES 

BDM INTERNATIONAL/BDM MANAGEMENT SERVICES 

BOEING COMPUTER SERVICES COMPANY 

BOEING SERVICES INTERNATIONAL, INC. 

BURNS & ROE SERVICES CORPORATION 

CALCULON CORPORATION 

CERBERONICS, INC. 

CHEMFIX TECHNOLOGIES, INC. 

COMPUTER SCIENCES CORPORATION 

CONTROL DATA CORPORATION 

DATACROWN, INC. 

FEDERAL ELECTRIC CORPORATION 
A Subsidiary of International Telephone and 
Telegraph Corporation 

HUGHES AIRCRAFT COMPANY 

KENTRON INTERNATIONAL, INC. 

LEAR SIEGLER, INC. 

LOCKHEED CORPORATION 

NORTHROP SERVICES, INC. 

NORTHROP WORLDWIDE SERVICES, INC. 

PLANNING RESEARCH CORPORATION 

RAYTHEON SERVICE COMPANY 
A Subsidiary of Raytheon Corporation 

RCA SERVICE COMPANY 
A Division of RCA 

RURAL METRO FIRE, INC. 

UNITED INFORMATION SERVICES, INC. 

VINNELL CORPORATION 



February, 1983 



193 

Mr. Brooks. Thank you very much. 

Dr. Daoust, I have one question. Does your organization have 
purely informational contact with Government agencies that might 
be curtailed by the proposed OMB regulation? 

Mr. Daoust. Yes; we do. We have a great many, aside from the 
things that anyone can complain about, we have a great many 
functions where people call me from the Government and say "We 
need to know something" or "We have this opinion." 

There is a great liaison function between particularly the execu- 
tive branch of the Government and the companies in our associ- 
ation. 

Many people, not knowing anyone else, turn to me to speak for 
industry on these support service type operations. 

Mr. Brooks. Mr. Horton? 

Mr. Horton. Thank you very much, Mr. Chairman. 

We appreciate your testimony. I think you were here this morn- 
ing, so you heard our comments to Mr. Wright. I intend to follow 
up on that and hope that they will give more time to this revision. 

I would urge you and others testifying here today to watch it 
very carefully and very closely. Our committee, of course, will be 
doing that. 

I am sure we will be back here again if they come out with any- 
thing that we feel is counterproductive. 

So I would urge you to be very careful. 

I am sure that the chairman and I will cooperate, we will do ev- 
erything to make certain that organizations such as yours and the 
others who testified are not going to be discriminated against as 
far as this type of regulation is concerned. 

Mr. Daoust. Thank you, Mr. Horton. I certainly recognize that 
comment that nothing is going to happen. You are right, except 
they have been using that so much, "Nothing is going to happen; 
you are not going to be executed until next month, not this 
month," it doesn't give you a good feeling. 

Mr. Horton. I understand that. I am certainly concerned with 
what they are attempting to do. 

As I attempted to urge them this morning, they must do their 
homework before they really get into this very complicated thicket. 

Mr. Daoust. Thank you. 

Mr. Brooks. You might talk to some of your friends downtown, 
explain the problem to them. 

Mr. Daoust. Yes, sir. 

Mr. Brooks. Our next witness is Evan J. Kemp, Jr., executive di- 
rector of the Disability Rights Center in Washington, D.C. Before 
joining DRC, Mr. Kemp was with the Division of Corporation Fi- 
nance, Corporate Regulation, and Investment Management at the 
Securities and Exchange Commission. 

Prior to his work with the SEC he was in the Office of the Chief 
Counsel of the Internal Revenue Service in Washington, D.C. 

Mr. Kemp has been disabled since 1949. 

He is accompanied today by Bonnie Milstein, who is a staff 
lawyer with the Center on Law and Social Policy in Washington, 
D.C. 

We appreciate your being here, and you may proceed with your 
statement. 



194 

STATEMENT OF EVAN J. KEMP, JR., EXECUTIVE DIRECTOR, DIS- 
ABILITY RIGHTS CENTER, WASHINGTON, D.C., DISABILITY 
RIGHTS EDUCATION AND DEFENSE FUND, INC., ACCOMPANIED 
BY BONNIE MILSTEIN, ATTORNEY, CENTER ON LAW AND 
SOCIAL POLICY 

Mr. Kemp. Mr. Chairman, Congressman Horton, my name is 
Evan Kemp. I am executive director of the Disability Rights 
Center. I am appearing here today with Bonnie Milstein, attorney 
with the Center on Law and Social Policy. I am here to provide tes- 
timony on behalf of my organization and the Disability Rights Edu- 
cation and Defense Fund, Inc. 

The Disability Rights Center, a nonprofit, tax-exempt corpora- 
tion, is a public interest organization working to strengthen the 
rights of both physically and mentally disabled people. Since 1976 
we have been committed to the enforcement of existing legislation 
granting rights to handicapped people. 

The Disability Righ f s Education and Defense Fund, Inc., 
[DREDF], is a nonprofit, tax-exempt national research, education, 
community organizing, and advocacy organization dedicated to pro- 
moting the civil rights of disabled people. 

DREDF provides information and support to a constituency net- 
work of over 5,000 disabled adults, parents of disabled children, 
community-based independent living centers and self-advocacy 
groups. 

We are here to provide the committee testimony on the Office of 
Management and Budget's proposed "Cost Principles for Non-profit 
Organizations," published in the January 24, 1983, Federal Regis- 
ter. 

We are extremely concerned with the broad impact these regula- 
tions will have on millions of disabled adults and parents of dis- 
abled children who only in the last decade have achieved a signifi- 
cant voice in the decisionmaking processes of our Government. 

The large majority of disabled people are affiliated with nonprof- 
it organizations that will be affected by the OMB proposed rules. 
Federal regulations already exist which forbid such organizations 
from lobbying or engaging in politics at taxpayers' expense. These 
expanded regulations on political activity are unnecessary, inequi- 
table, and conflict with Federal mandates intended to integrate dis- 
abled adults and disabled children into society. 

It is useful to look at two specific examples of this impact: 

First is the area of regulatory reform and administrative policy 
setting. Over the past year the Department of Justice has been re- 
drafting coordination regulations implementing section 504 of the 
Rehabilitation Act of 1973. The Department of Justice, Civil Rights 
Division, has publicly stated that they intend to release the pro- 
posed rule for 10 public hearings and a 120-day comment period 
within the next month. 

Section 504 is viewed by disabled people throughout the country 
as our major civil rights act. It was enacted to promote integration 
of disabled people into all phases of our society. Disabled people 
have responded over the past year with 40,000 letters to the White 
House and the Department of Justice outlining their concern with 
any proposed changes in section 504. Our single most important op- 



195 

portunity to be heard is through providing oral testimony and writ- 
ten comments at the 10 public hearings which will be held around 
the country. Yet OMB would foreclose this opportunity to most dis- 
abled people in the United States. The very existence of the OMB 
notice in the Federal Register is having a chilling effect on disabled 
people. They are concerned that if they take this opportunity to ex- 
press their opinion on the regulations implementing section 504 
they will lose necessary funding they receive to provide social serv- 
ices and other assistance to their communities. 

A second example of this impact is in the area of independent 
living centers. In 1978 the Congress enacted title VII of the Reha- 
bilitation Act of 1973. Title VII provides funds to establish commu- 
nity based independent living service centers. The major goal of 
the title is to provide funds for the establishment of programs that 
will assist disabled people to live independently, outside of institu- 
tions, and to promote self-sufficiency and leadership development. 
The title provides 3 years of funds to establish programs. It is ex- 
pected that the independent living programs will maximize third 
party revenues in order to maintain their programs beyond the 3 
years of Federal funds. 

In order to comply with this the centers must be involved in all 
levels of decisionmaking — on the local, State, and Federal levels. 

The proposed OMB rules will prohibit this necessary develop- 
ment of self-sufficiency for over 130 independent living programs 
nationwide. 

The OMB rules will severely undermine the Federal mandates 
intended to promote equality of opportunity and integration into 
society for millions of disabled people. Disabled people will be 
denied the opportunity to receive information on governmental 
processes and to communicate this information to their communi- 
ties and the general public. 

The process of policymaking has called for the consideration of 
all points of view. Eliminating disabled people and their nonprofit 
programs from this process by expanding the concept of political 
activity and imposing the added burdens set out in the OMB rule is 
illogical and counterproductive. 

Mr. Chairman and members of the committee, we appreciate the 
opportunity to be heard today. 

Mr. Brooks. We appreciate your coming down. I have a couple of 
questions for you, Mr. Kemp. 

What impact do you think these proposed regulations will have 
on the ability of disabled adults and parents of disabled children to 
speak out on regulatory reform activities and administrative poli- 
cies? 

Mr. Kemp. It would have a severe impact. The disability rights 
movement is very much of a grass roots movement. We have small 
organizations all over the country. They are basically nonprofit. 
Some do get Federal money. They are not big enough to be able to 
split up and have two entities, one that would handle so-called po- 
litical activities and the other Government grants or contracts. It 
would have a severe impact on the disability rights movement 
throughout the country. 

Mr. Brooks. An adverse impact? 

Mr. Kemp. Yes; very adverse. 



196 

Mr. Brooks. An impact can be either way. 

Mr. Kemp. That is true. 

Mr. Brooks. Although the proposed regulations affect all disad- 
vantaged people, in what ways will they more adversely affect dis- 
abled people? 

Mr. Kemp. Disabled people are stereotyped by society. Disabled 
people are considered child-like, sick, and dependent. We know we 
are considered this way. Thus we tend to form groups to speak for 
us. 

This is one way we are different from other disadvantaged 
people. 

We are also a very young movement. There really wasn't a dis- 
ability rights movement until about 10 years ago. Because of our 
youth and inexperience, Circular A- 122 is going to hurt us more. 

The mentally retarded and those who are very ill must have 
groups to speak for them. 

These groups performed a great public service in representing all 
the people thrown off SSI and SSDI in the last couple of years. If 
A-122 went through, the very ill and severely retarded would be 
even more vulnerable to the whims of others than they are today. 

Mr. Brooks. Mr. Horton? 

Mr. Horton. Thank you, Mr. Chairman. 

Mr. Kemp, I don't have any questions. I just want to thank you 
for your testimony. It is very effective. 

Mr. Brooks. Thank you for your excellent testimony. We are 
grateful to you and Ms. Milstein for coming down. Thank you very 
much. 

Our next witnesses, representing the American Civil Liberties 
Union, will give their views on the constitutional implications of 
the OMB proposal. 

John Shattuck, the director of ACLU's Washington office, is a 
graduate of the Yale Law School. Thomas J. Madden and David H. 
Remes are with the Washington office of Kaye, Scholer, Fierman, 
Hays & Handler. 

We are delighted to have you gentlemen. We appreciate your 
comments. We will enter your prepared remarks in the record so 
you can lay out whatever you think is most essential. 

STATEMENT OF JOHN SHATTUCK, DIRECTOR, WASHINGTON 
OFFICE, AMERICAN CIVIL LIBERTIES UNION, ACCOMPANIED 
BY THOMAS J. MADDEN, PARTNER, AND DAVID H. REMES, AS- 
SOCIATE, KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, 
WASHINGTON, D.C. 

Mr. Shattuck. Thank you very much, Mr. Chairman. 

The American Civil Liberties Union is very gratified to be invit- 
ed to testify here at this treatment of what we consider to be a fun- 
damental constitutional issue. There are, obviously, many ramifica- 
tions of the proposed OMB regulation. 

What we are particularly concerned about is what we think is its 
blatant, flat and sweeping violation of the first amendment to the 
Constitution and not only of a particular group of citizens but of 
millions of Americans who would be affected by this regulation. 



197 

Unlike many other invasions of first amendment rights, this one 
cuts right across the board; it affects millions of citizens. 

Mr. Chairman, our statement will be presented by Mr. Thomas 
Madden, partner in the law firm of Kaye, Scholer, Fierman, Hays 
& Handler. 

As a former Federal official of the Department of Justice and an 
expert on Government grants and contracts and a civil liberties ad- 
vocate, Mr. Madden is uniquely qualified to present our views on 
this matter. 

Mr. Brooks. We will accept that for the record in full. 

Mr. Madden. Thank you, Mr. Chairman. I would like to make a 
very brief statement. 

Mr. Brooks. The gentleman will proceed. 

Mr. Madden. Mr. Chairman, it is the view of the 

Mr. Horton. Would you yield a minute? 

I have looked over your statement. It is a very good legal analy- 
sis of the problems involved here. I want to compliment you on it. 

I realize you are not going to read it all. We appreciate that be- 
cause of the time problem. It can be a bible for them downtown to 
guide them through some of this thicket I was talking about this 
morning. 

Mr. Madden. Thank you, Congressman Horton. 

Mr. Chairman, it is the view of the ACLU that the proposed po- 
litical advocacy rule would impose drastic and wholly unwarranted 
restrictions on constitutionally-protected expression. It would su- 
perimpose a full-fledged system of censorship on contract and grant 
administration. 

At the outset I would note that it is misleading to characterize 
the activities at issue here as "political advocacy" as OMB has 
done. The activities subject to the rule involve much more than 
lobbying and electioneering. 

The activities covered by the rule would include virtually any 
statement or action that might directly or indirectly influence any 
governmental decision. 

Ordinary and necessary costs of performing a contract or grant 
would simply be disallowed. For example, a Government contractor 
who receives a contract to build a new Government office building 
could not use contract funds to obtain Federal, State, or local per- 
mits, licenses, variances, or other necessary approvals. 

By the same token, a nonprofit organization performing under a 
grant to provide services for disadvantaged children could not use 
grant funds to negotiate modification of State and local policies to 
maximize the availability of services for such children. An arts 
group whose very raison d'etre is to perform dramatic works of 
topical moment would be barred altogether from receiving Federal 
funds to pay for the performance of such works. 

The very purpose of this rule, we submit, is antithetical to first 
amendment core values. Speech that is meant to persuade is enti- 
tled to no less constitutional protection than speech that is meant 
to inform. 

Yet the proposed rule would allow Federal contract and grant 
funds to be used only for neutral speech, and not for advocacy. 

In our view the rule is therefore unconstitutional. The Supreme 
Court has declared that "Government has no power to restrict ex- 



198 

pression because of its message, its ideas, its subject matter, or its 
content." 

As we explain in our prepared statement, none of OMB's prof- 
fered justifications for this content-based regulation is constitution- 
ally sufficient. The rule would not promote sound contract and 
grant management. To the contrary, from the standpoint of con- 
tract and grant administration, the rule would be unworkable, con- 
trary to effective and efficient use of appropriated funds, and in 
some respects entirely irrational. 

In addition, there is no merit to OMB's claim that taxpayers 
somehow have a right to see that their tax dollars are not used to 
subsidize messages with which they disagree. There will always be 
someone who objects to the way his or her tax dollars were spent, 
and Government would grind to a halt if the dissenting taxpayer 
could veto any expenditure of which he or she did not approve. 

Even if it were legitimate for the Government to try to restrict 
the use of Federal funds for political expression by contractors and 
grantees, the way OMB has chosen to do so is unjustifiably burden- 
some. 

There is simply no reason to disallow the entire salary costs of 
anyone who engages in any degree of political advocacy. Partial al- 
location of such salary costs to the contract or grant should contin- 
ue to be allowed, as it is under current law. 

Nor is there any justification for requiring costly duplication of 
staff and facilities — especially for an organization that wishes to or 
must engage in political advocacy and performs under a Federal 
contract and grant funds, but does not have access to substantial 
nongovernmental funding. 

Only recipients who could afford to split, amoeba-like, in two 
would be able to engage in both types of activities, political and 
nonpolitical alike. Few commercial contractors and even fewer non- 
profit grantees could accomplish this feat. This enormous, unneces- 
sary burden on protected expression clearly violates the first 
amendment. 

In addition, the very definition of political advocacy under the 
proposed rule is unconstitutionally vague. The rule would leave it 
entirely up to Government officials, acting as censors, to decide 
whether particular words or deeds constituted political advocacy. 

What constitutes an attempt to influence public opinion general- 
ly, or governmental decisions in particular, is completely a matter 
of subjective judgment. 

This regime of unbridled censorial power contrasts sharply with 
the existing system of lobbying and electioneering restrictions on 
recipients of Federal funds, on Federal employees, and on tax- 
exempt organizations. 

Those restrictions address specific, narrow categories of behavior 
and" entail no subjective inquiry into motive. The Supreme Court 
has very narrowly construed the concepts of lobbying and election- 
eering so as to avoid the very abuses of power that OMB's rule in- 
vites. 

Finally, the political advocacy rule contains a myriad of excep- 
tions and qualifications that cast serious doubt on the rule's basic 
sincerity. 



199 

When you realize that contractors and grantees may still issue 
highly influential messages to Government if asked to do so by the 
proper bodies you must come to the conclusion that it is not politi- 
cal advocacy as such that this rule targets but, rather political ad- 
vocacy without the Government's permission. 

In conclusion, Mr. Chairman, we do not believe that the proposed 
rule can be revised so as to cure its current defects without, in 
effect, rescinding the rule altogether. 

For the very aim of the rule is impermissible — to go beyond ex- 
isting lobbying and electioneering limitations and to strike at any 
expression that may influence the public in some way that may, in 
turn, affect governmental decisions. 

We believe that there is no constitutional way to achieve this 
aim. 

The ACLU believes that OMB should not merely revise its pro- 
posed rule, as it has already indicated it is prepared to do, but 
should abandon any effort to achieve the same result in some less 
provocative way. The first amendment will not tolerate what OMB 
proposes in any form. 

Mr. Brooks. Thank you. 

Mr. Horton? 

Mr. Horton. Thank you very much. 

Do you foresee any constitutional problems other than first 
amendment problems with the present proposal? 

Mr. Madden. I think there are constitutional problems in a 
couple of other ways. One was referred to by one of the earlier wit- 
nesses. That is the question of whether or not there is a violation of 
the due process clause of the fifth amendment, whether or not that 
due process clause arises out of violation of protected liability inter- 
ests, also whether or not the executive branch has the authority 
under a separation of powers doctrine to in effect prevent contrac- 
tors and grantees from bringing to the attention of Congress and 
Members of the legislature their concerns about Government pro- 
grams, the concerns about the operation of their activities. 

Congress has already spoken through various riders to appropri- 
ations bills, 18 U.S.C. § 1913, as to what limitations on lobbying it 
deems appropriate. In doing so it stretched the Constitution to its 
limit. For the executive branch to go beyond that without any au- 
thority I think creates very serious constitutional problems. 

Mr. Horton. OMB cites several court cases as legal authority for 
its proposal. Do these cases support those proposed rule changes? 

Mr. Madden. Mr. Chairman, I believe they do not. I would be 
glad to submit something for the record on that particular point. 

Mr. Horton. I think that would be helpful for the committee. 

Mr. Madden. OK. We looked at each of those cases and feel they 
do not provide the necessary support. 

[The information follows:] 



200 



In support of its proposed rule, 0MB cites seven cases, all of 
which cut against , not in favor , of the rule. 

Wooley v. Maynard held only that government may not coerce 
individuals into serving as personal couriers for official messages. 
This, in a way, was also the meaning of West Virginia Board of Education 
v. Barnette . 0MB has simply offered no evidence that federal contract 
or grant programs are being abused in this manner. 

Elrod v. Burns stands for the proposition that employment of non- 
policymaking state officials may not be conditioned on association with 
a political party. 0MB has not suggested that access to federal contract 
or grant funds is today being conditioned on political affiliation. 
Moreover, the cure for government favoritism under Elrod is to make the 
government benefit available on a neutral basis, and not to withdraw it, 
as 0MB proposes. 

Abood v. Detroit Board of Education held that individuals who are 
required by law to support unions for collective bargaining purposes 
cannot be required to subsidize union activities not germane to collective 
bargaining. This is a far cry from saying, as 0MB says, that taxpayers 
cannot be made to support "political advocacy" activities that are in 
fact germane to statutory contract and grant purposes. In fact, Buckley 
v. Valeo , a case not cited by 0MB, supports precisely the opposite 
conclusion — namely, that a taxpayer has no First Amendment right to 
insist that his or her tax dollars be spent only to spread those messages 
with which the taxpayer agrees. 

0MB does correctly cite NAACP v. Button and In re Primus for the 
proposition that litigation may constitute a form of "political advocacy." 
But 0MB fails to appreciate that this fact makes restrictions on 
litigation activity more difficult , not easier , to justify. 

Finally, 0MB misstates the thrust of Civil Service Commission v. 
National Association of Letter Carriers . In Letter Carriers , the Court 
declared it fundamental that Executive Branch employees should administer 
the law in accord with the will of Congress, rather than in accord with 
their own views or with the will of a political party. But the Court 
made this general observation in affirming the validity of restrictions 
barring federal employees from taking formal positions in political 
parties, from undertaking to play substantial roles in partisan political 
campaigns, and from running for office on partisan political tickets. It 
is activities such as these , the Court recognized, that Congress deemed a 
threat to the faithful administration of its will. Federal contractors 
and grantees are already barred from using appropriated f unds ■ f or such 
activities. The logic of 0MB' s reliance on Letter Carriers would thus 
subject federal contractors and grantees to restrictions even more 
stringent than those imposed on federal employees. 



201 

Mr. Horton. I have one other question I will ask and we will 
have others that we will submit to you for written responses. 

Does this rule impose an unconstitutional condition on the re- 
ceipt of Federal funds? 

Mr. Madden. I think it does impose 

Mr. Horton. I realize you are not the Supreme Court, but 

Mr. Madden. I think in reviewing the decisions of the Supreme 
Court it is very clear that this does impose an unconstitutional re- 
straint on receipt of Federal funds in a number of fashions. It is a 
regulation that is based on content of speech and it regulates that 
content of the speech in the way in which it imposes what I think 
is a very severe penalty for exercise of free speech, by proposing to 
disallow all of the costs involved in advocacy of an individual who 
perhaps spends 5 percent or 10 percent of his or her time on advo- 
cacy. 

The rule is clearly intended to penalize that person for that par- 
ticular speech. That raises significant constitutional problems. 

There are vagueness issues that I referred to briefly. Basically 
under this rule they do not provide the kind of clear guidance the 
Supreme Court has said is necessary for restrictions of freedom of 
speech. 

In previous congressional enactments such as 18 U.S.C. § 1913 
the Congress very narrowly defined the limitations on free speech 
that would apply to recipients of Federal funds. They have limited 
that to lobbying. 

Lobbying is a well understood term and there is a substantial 
basis for such restrictions. None of those are here. 

That creates constitutional problems. 

In our detailed statement we provide other reasons such as the 
improper discriminatory effect of the rule on certain kinds of 
speech. 

Mr. Horton. Thank you very much. 

Thank you very much, Mr. Shattuck, Mr. Madden, and Mr. 
Remes. We appreciate your testimony. 

Mr. Shattuck. Thank you. 

[Messrs. Madden's and Remes' prepared statement and responses 
to Mr. Brooks' questions follow:] 



202 



COMMENTS OF 

AMERICAN CIVIL LIBERTIES UNION 

ON "POLITICAL ADVOCACY" RULE 



Prepared by 
Thomas J. Madden and David H. Remes 
Kaye, Scholer, Fierman, Hays & Handler 
Washington, D.C. 

Feb. 24, 1983 



This submission represents the comments of the 
American Civil Liberties Union ("ACLU") on the proposed 
revision to the Office of Management and Budget ("OMB") 
Circular A-122, "Cost Principles for Nonprofit 
Organizations." 48 Feu. Reg. 3348 (Jan. 24, 1983). 1 
The ACLU is a nationwide, non-partisan organization of 
more than 250,000 members devoted to the protection of 
individual rights and liberties. The ACLU does not 
receive any of its funds from federal contracts or grants, 

SUMMARY AND EFFECT OF THE PROPOSED RULE 
The proposed rule, on its face, would disallow 
the use of federal contract or grant funds to underwrite 
activities defined as "political advocacy," Sec. (a); as 
demonstrated below, the practical effect of the rule 



1 The OMB notice announced that parallel versions of 
the rule embodied in the proposed revision of Circular 
A-122 would be proposed for civilian and defense 
contractors by the Department of Defense, NASA, and the 
General Services Administration. 48 Fed. Reg. 3348 
(1983). The proposed OMB rule would consist of a new 
paragraph "B 33 Political Advocacy ," to be inserted in 
Circular A-122. 48 Fed. Reg. 3350 (1983). References 
herein to the rule will be to sections of that new 
paragraph B 33. 



203 



would be to disallow recipients of federal contract and 
grant funds from engaging in such activities altogether. 
The rule would require federal contractors and grantees to 
maintain completely separate staff, office space, and 
equipment for activities constituting "political 
advocacy," Sec. (f), for salaries and any other costs 
could not be apportioned between contract or grant work, 
on the one hand, and "political advocacy," on the other. 
See 48 Fed. Reg. 3349-50 (1983) (informational appendix). 

Under the proposed rule, "political advocacy" is 
defined broadly enough to encompass virtually any 
statement or action by any federal contractor or grantee 
that could conceivably have any -effect on anybody. Thus, 
"political advocacy" would seemingly encompass activities 
ranging from the exhibition of controversial artwork or 
the production of a topical play by federally-funded arts 
groups, to publication of a newsletter by an association 
of state and local governments to its members discussing 
developments in federal grant law; from a defense 
contractor's efforts to obtain a variance from a local 
zoning board to permit expansion of a facility for defense 
contract work, to the submission of comments by public 
health insurers on proposed regulations bearing on the 
administration of their contract or grant programs. 



20-644 O— 83 14 



204 



Any activity, in short, that could possibly be 
construed as an "attempt" to "influence" the public on 
political matters, or otherwise to "influence" any 
"governmental decision," would fall within the rubric of 
"political advocacy" under the proposed rule. See Sec. 
(b)(1), (3), (4), (6). 2 The proposed rule would 
completely disallow use of federal funds to underwrite 
such activities, even if such activities were indisputably 
related to the purpose of the federal contract or grant. 
And the proposed rule would appear to place on the 
recipient of the federal funds the burden of proving that 
such funds were not used in any way to underwrite such 
activities. 

From the standpoint of contract and grant ad- 
ministration, the proposed rule would be unworkable, con- 
trary to effective and efficient use of government 
funding, and in some respects wholly irrational. Ordinary 
and necessary costs of performing a contract or grant 
would simply be disallowed. As noted above, for example, 
a government contractor who receives a contract to build a 
new government office building could not use contract 
funds to obtain federal, state, or local permits, licen- 
ses, variances, or other necessary approvals. Approval 



2 See infra Part II. Also included in the definition 
of ""political advocacy" are participation in litigation as 
an amicus curiae , Sec. (b)(5), and various forms of 
support for a political action committee, Sec. 
(b) (2). 



205 



for the provision of such fundamental services as 
sewerage, traffic, or gas and electricity for contract 
projects could not be sought using federal funds. 

By the same token, a nonprofit organization 
performing under a grant to assist battered wives, for 
example, could not use grant funds to negotiate 
modification of state and local policies to maximize the 
availability of services for such wives. And, as noted 
above, an arts group whose very raison d 'etre is to : 
perform dramatic works of topical moment would be barred 
altogether from receiving federal funds to pay for such 
performance. 3 

Inevitably, the propos-ed rule not only would 
serve to limit the activities undertaken by contractors or 
grantees themselves under federal contract or grant 
programs, but would serve to limit the contract and grant 
programs offered by federal agencies pursuant to statutory 
mandate. Needless to say, if contract or grant costs for 



3 Also affected would be nonprofit associations of 
state and local government officials and entities — for 
example, the National Governors Association, the National 
League of Cities, the National Conference of State 
Legislators, the National Association of Counties, and the 
U.S. Conference of Mayors -- who currently receive federal 
funds for communicating to their members information on 
new government policies; for serving as clearinghouses for 
information on effective projects developed by individual 
members of such associations; and for developing model 
laws, regulations, ordinances, and policies. Under the 
proposed rule, the use of federal funds for virtually all 
such purposes may well be deemed nonallowable . 



206 



certain activities are disallowed, contract and grant 
funds simply will not be made available for such ac- 
tivities in the first instance, even if fully within an 
agency's discretion to make available under its mandate 
from Congress. 

THE PROPOSED RULE IS UNCONSTITUTIONAL ON ITS FACE 

Vulnerable as the proposed rule would be from a 
contract and grant administration standpoint, the rule 
would be subject to attack on even more fundamental 
grounds. Despite OMB's claim that its rule is motivated 
by "concern for protecting the free and robust interchange 
of ideas," 48 Fed. Reg. 3348 (1983)., the proposed "poli- 
tical advocacy" rule is unconstitutional for three rea- 
sons. First , the very purpose of the rule — to restrict 
expression on the basis of its content — is one that the 
First Amendment forbids government to pursue, absent a 
showing of compelling justification and unavoidable neces- 
sity. No such showing has been or can be made here. 
Second , even if such a showing could be made, the defini- 
tion of "political advocacy" under the proposed rule is 
unconstitutionally vague, leaving to the subjective judg- 
ment of government officials whether particular activities 
constitute such advocacy. Third, by virtue of its excep- 
tions and qualifications, the proposed rule unconstitu- 
tionally discriminates among those to whom it will 
directly or indirectly apply. 



207 



The proper test for whether a particular use of 
federal funds should be allowed is whether that use of 
funds is reasonably related to the purposes of the grant 
or contract involved and is otherwise lawful. OMB, by 
contrast, proposes to single out expression on the basis 
of its "political" content, and to decree that such 
expression may not be underwritten with federal funds — 
regardless of whether such expression is reasonably 
related to grant or contract purposes. The use of federal 
funds to underwrite other, non -"political" expression 
would continue to be allowed. Because the "political 
advocacy" rule offends the First Amendment for the reasons 
set forth herein, the rule is unconstitutional and, 
accordingly, should not be promulgated. 



I. The "Political Advocacy" Rule Would 
Constitute a Forbidden Content-Based 



Restriction on Expression Protected 
By The First Amendment. 



A. The Proposed Rule Is Presumptively 
Unconstitutional. 

It is settled that, even when an individual or 

group has no independent right to a particular benefit, 

the government may not grant or withhold that benefit on a 

basis that infringes freedom of expression or any other 



208 



constitutionally protected right. Perry v. Sindermann , 408 
U.S. 593, 597 (1972); Pickering v. Board of Education , 391 
U.S. 563, 568, 574 (1968). By the same token, even where the 
government might deny a benefit without giving any reason at 
all, it cannot predicate the denial of a benefit on an 
impermissible reason -- such as its desire to suppress 
disfavored expression. See Perry v. Sindermann , supra ; 
Thomas v. Review Board , 101 S. Ct. 1425, 1431 (1981). 

Thus, at the outset, it should be recognized 
that the fact that no one has a right to receive federal 
contract or grant funds does not mean that the government is 
free to impose any restrictions it may choose on the use of 
such funds, or impose restrictions on the use of such funds 
for improper motives. Nor can governmental restrictions on 
protected expression by private parties be automatically 
upheld on the basis of "the special interests of a government 
in overseeing the use of its property." Consolidated Edison 
Co. v. Public Service Commission , 447 U.S. 530, 540 (1980). 
Any restrictions that are imposed must themselves be 
constitutionally permissible. The restrictions embodied in 
the "political advocacy" rule are not. 4 



4 Needless to say, more than the rights of federal 
contractors and grantees are at stake, for "the First 
Amendment goes beyond protection of the press and the 
self-expression of individuals to prohibit government from 
limiting the stock of information from which members of 
the public may draw." First National Bank v. Bellotti , 

(Footnote Continued) 



209 



The "political advocacy" rule avowedly discrim- 
inates between expression that is meant to inform and ex- 
pression that is meant to persuade, allowing the use of 
federal funds to underwrite "neutral" speech but not 
"political advocacy." But the Supreme Court long ago re- 
cognized that "[t]he First Amendment is a charter for gov- 
ernment, not for an institution of learning. 'Free trade 
in ideas' means free trade in the opportunity to persuade 
to action, not merely to describe facts." Thomas v. Col - 
lins , 323 U.S. 516, 537 (1945). 5 Thus the Supreme 
Court has declared that "the fact that advocacy may per- 
suade ... is hardly a reason to suppress it: The Con- 
stitution 'protects expression which is eloquent no less 



(Footnote Continued) 



435 U.S. 765, 783 (1978). See Virginia State Board of 
Pharmacy v. Virginia Citizens Consumer Council, Inc. , 425 
U.S. 748, 756-57 (1976); Linmark Associates, Inc. v. 
Township of Willingboro , 431 U.S. 85 (1977). Any 
content-based restriction on the use of federal funds by 
contractors or grantees thus burdens the First Amendment 
rights of the public as well as those of the recipients of 
such funds. See Procunier v. Martinez , 416 U.S. 396, 
408-09 (1974)r ~Kleindienst v. Mandel , 408 U.S. 753, 764-65 
(1972) (dictum); Lamont v. Postmaster General , 381 U.S. 
301, 305 (1965). It is irrelevant to First Amendment 
analysis that the purpose of the speech involved may be 
to promote an organization's purposes under a federal 
contract or grant, and not some disinterested civic 
purpose. See Virginia State Board of Pharmacy , 425 U.S. 
at 7 61-65; Village of Schaumburg v . Citizens for a Better 
Environment , 444 U.S. 620, 628-32 (1980). 

5 Citing Abrams v. United States , 250 U.S. 616, 626 
(1919) ( Holmes , J. , joined by Brandeis, J., dissenting), 
and Gitlow v. New York , 268 U.S. 652, 672 (1925) (Holmes, 
J., ]oined by Brandeis, J., dissenting). 



210 



than that which is unconvincing.'" First National Bank v. 
Bellotti , 435 U.S. 765, 790 (1978), quoting Kingsley 
International Pictures Corp. v. Regents , 360 U.S. 684, 689 
(1959) . 

Any rule that discriminates against persuasive 
expression as such is therefore presumptively unconstitu- 
tional, for "above all else, the First Amendment means 
that government has no power to restrict expression 
because of its message, its ideas, its subject matter, or 
its content." Police Department v. Mosley, 408 U.S. 92, 
95 (1972) . See , e.g . , Virginia State Board of Pharmacy v. 
Virginia Citizens Consumer Council, Inc. , 425 U.S. 748 
(1976) (invalidating state ban on advertising of prescrip- 
tion drug prices); Consolidated Edison Co. v. Public 
Service Commission , 447 U.S. 530 (1980) (invalidating 
state utility commission order prohibiting inclusion in 
monthly bills of inserts discussing "controversial" issues 
of public policy). 



B. The Proposed Rule's Justifications 
Are Constitutionally Insufficient 



Because the "political advocacy" rule is a 
regulation "directed at speech itself, and the speech is 
intimately related to the process of governing," First 
National Bank v. Bellotti, 435 U.S. at 786 (footnote 



211 



omitted) ,*» the rule will not withstand constitutional 
challenge unless it can satisfy two exacting criteria. 
First , as justification for the rule, the government must 
demonstrate "a subordinating interest which is compel- 
ling," Bates v. City of Little Rock , 361 U.S. 516, 524 
(1960), "and the burden is on the government to show the 
existence of such an interest," Elrod v. Burns , 427 U.S. 
347, 362 (1976). See Civil Service Commission v. National 
Ass'n of Letter Carriers , 413 U.S. 548 (1973). 

Second, even if such a compelling justification 
can be adduced, the rule will not survive unless it has 
been "closely drawn to avoid unnecessary abridgment of 
[protected] freedoms." Buckley v. Valeo , 424 U.S. 1, 25 
(1976) (per curiam). 7 But the "political advocacy" 
rule is not supported by any compelling governmental 
objective, and, even if it were, the rule is not tailored 
to serve the government's proffered objectives in the 



6 The proposed rule specifically includes within its 
definition of "political advocacy" attempts to influence 
ballot choices and "governmental decisions." Sec. (b)(1), 
(3). See Sec. (e) (defining "governmental decisions"). 

7 See Thomas v. Review .Board , 101 S. Ct. at 1431-32; 
Memorial Hospital v. Maricopa County , 415 U.S. 250, 256-59 
(1974) ; Shapiro v. Thompson , 394 U.S. 618, 634 (1969); 
Hunter v. Erickson , 393 U.S. 385, 386-91 (1969); United 
States v. Jackson , 390 U.S. 570, 582-83 (1968); Sherbert 
v. Verner , 374 U.S. 398, 404-07 (1963). 



212 



least restrictive manner possible.^ 

OMB advances three justifications for the 
"political advocacy" rule. First , OMB suggests that the 
proposed rule advances the government's goal of "sound 
management of federal grants and contracts. "9 Second , 
OMB contends that the rule is warranted to assure that the 
use of federal funds will not infringe constitutional 
rights or distort the political process "by encouraging or 
discouraging certain forms of political activity. " 1 ^ 



8 Notwithstanding OMB's suggestion to the contrary, 
justifying the proposed rule does not merely involve a 
demonstration that the rule represents a "balance" between 
governmental interests and First Amendment rights. 48 
Fed. Reg. 3348 (1983). As noted- above, the rule may be 
justified only if it satisfies the exacting standards that 
apply to any content-based restriction on protected 
expression. Indeed, precisely because protected expres- 
sion is at stake, neither OMB nor any other federal agency 
should be deemed to have authority to "curtail or dilute" 
such expression without the clearest statement of congres- 
sional intent to authorize such regulation. See Kent v. 
Dulles , 357 U.S. 116, 129-30 (1958). 

9 48 Fed. Reg. 3348 (1983). Under its "sound manage- 
ment" rationale, OMB asserts that the "diversion" to 
"political advocacy" of federal funds is an "abuse of the 
system and an uneconomical, inefficient and inappropriate 
use of the public's resources." Id. OMB also asserts 
that "the neutral, non-ideological administration of 
federally funded programs" is impeded by "the appearance 
of federal support for particular positions in the public 
debate." Id. The proposed rule, OMB maintains, would 
correct these problems. 

10 48 Fed. Reg. 3348 (1983). Under this "burden on 
speech and distortion of elections" rationale, OMB 
maintains that the proposed rule would prevent the 
government both from interfering with or controlling the 
exercise of protected rights by those who receive federal 
funds, and from indirectly influencing the outcome of 
elections by subsidizing private political expression. 
Id, 



213 



Third , OMB argues that the rule "will ensure, to the 
extent consistent with the communications function of the 
government, that taxpayers are not required, directly or 
indirectly, 'to contribute to the support of an 
ideological cause [they] may oppose.'"^ None of 
these justifications can withstand close examination. 

( 1 ) The "sound management" rationale. Th i s 
rationale is entirely conclusory. Nothing in the OMB no- 
tice indicates why the supposed "diversion" of federal 
funds to so-called "political advocacy" is either "uneco- 
nomical" or "inefficient." Moreover, OMB's characteriza- 
tions of such "diversion" as "inappropriate" and "an abuse 
of the system" simply restate the rationale behind the 
proposed rule without justifying it. Indeed, to suggest 
that the use of federal funds to underwrite "political 
advocacy" is "uneconomical" or "inefficient" from a grant 
or contract management standpoint is also merely to 
restate the rule's rationale — if the premise of this 
suggestion is that such use of federal funds is improper 



11 48 Fed. Reg. 3348 (1983), quoting Abood v. Detroit 
Board of Education , 431 U.S. 209, 235 (1977) . As a 
corollary either of this "dissenting taxpayer" rationale 
or of the second rationale, or of both, OMB also argues 
that the rule is warranted to negate any inference that, 
by making funds available to groups with particular 
viewpoints, the government has itself endorsed those 
viewpoints. Id. 



214 

and therefore a waste. 1 2 

If the premise of OMB ' s suggestion is instead 
that disallowance of the use of federal funds to under- 
write "political advocacy" is warranted to reduce the 
costs and burdens of administering federal grants and con- 
tracts, then the short answer is that such a justifica- 
tion, even if otherwise supportable, is constitutionally 
insufficient. See Schneider v. New Jersey , 308 U.S. 147, 
16 2 (19 39); Village of Schaumburg v . Citizens for a Better 
Environment , 444 U.S. 620, 639 (1980). But that justifi- 
cation is impossible to support in any event, for the 
proposed rule, by commanding close government scrutiny of 
contractor and grantee activity -for proscribed "political 
advocacy" -- and by defining such advocacy in a manner 
certain to generate dispute, see infra Part II — would 
unavoidably increase rather than reduce administrative 
costs and burdens. 13 



12 The Acting Deputy Associate Director for Adminis- 
tration evidently assumes that any funds used to under- 
write activities defined as "political advocacy" have, 
ipso facto , been "diverted from statutory purposes." 48 
Fed. Reg. 3349 (1983). Such a sweeping assumption is 
plainly unfounded. Surely it is within the statutory 
purpose of a defense procurement contract, for example, 
for a defense contractor to seek a "governmental decision" 
in its favor when a variance is needed to permit expansion 
of a contract work facility. Private "political advocacy" 
thus may well be integral to the execution of a statutory 
grant or contract program. 

13 OMB argues that the current system creates "the 
appearance of federal support for particular positions in 
the public debate." OMB then seems to contend that 
eliminating that appearance would remove an obstacle to 

(Footnote Continued) 



215 



( 2) The "burden on speech and distortion of 
elections" rationale. The difficulty with this rationale 
is that the proposed rule is not the least restrictive 
means of treating the supposed problem. If the government 
fears that allowing federal funds to be used to underwrite 
"political advocacy" will somehow burden the exercise of 
First Amendment rights by recipients of such funds, then 
the obvious solution is to assure that such funds are 
truly made available with no strings attached — and not 
to ban the use of such funds to underwrite the protected 
activities. See Virginia State Board of Pharmacy v. 
Virginia Citizens Consumer Council Inc. , 425 U.S. 748, 770 
-71 (1976). 14 Similarly, if the- government fears 



(Footnote Continued) 

"the neutal, non-ideological administration of federally 
funded programs." How a public perception of federal par- 
tisanship could interfere with contract or grant adminis - 
tration is left unexplained. 

14 See also Joyner v. Whiting , 477 F.2d 456, 461-62 
(4th Cir. 1973) (sustaining the right of state-subsidized 
college newspaper to publish editorial on controversial 
subject, holding that the First Amendment allows govern- 
ment to "spend money to publish . . . positions on contro- 
versial subjects"). OMB's reliance on Wooley v. Maynard, 
430 U.S. 705 (1977) is entirely misplaced"! First, OMB has 
offered no support for its suggestion that any aspect of 
federal grant or contract administration is politically 
coercive. Second, the fact is that in Wooley the Supreme 
Court tacitly accepted Justice Rehnquist's observation in 
dissent that the citizens of New Hampshire could indeed be 
compelled to pay, through their taxes, for the cost of 
erecting and maintaining billboards proclaiming "Live Free 
or Die," even if they could not be compelled to display 
that proclamation on their own license plates. 430 U.S. 
at 721. See L. Tribe, American Constitutional Law , 590 
n.8 (1978). This is not to suggest, of course, that the 
government could compel recipients of federal funds to 
espouse particular political viewpoints. 



216 



that its awards of contract and grant funds may somehow 
bias the electoral process by subsidizing private 
"political advocacy," then the solution is to guarantee 
that such awards are made on a completely neutral basis, 
without regard to the recipient's politics — and not to 
disallow the use of federal funds to underwrite protected 
activities . 1 5 

More fundamentally, to advance as a justifica- 
tion for the proposed rule the goal of shielding the elec- 
toral process from governmental influence is ludicrously 
under-inclusive. For as OMB itself is bound to 
acknowledge, n [t]he activities of government in a 
democracy necessarily involve a -degree of political 
advocacy." 48 Fed. Reg. 3348 (1983). But OMB offers no 
explanation for its conclusion that the use of federal 
funds for "political advocacy" by contractors or grantees 
is somehow more of a "distortion of the market place of 
ideas" than the use of federal resources for such purposes 
by the President and his appointees, or by Members of 
Congress and their staffs. That such supposed 
"distortion" is sought to be avoided only when the 



15 OMB's citation to El rod v. Burns , 427 U.S. 347, 356 
(1976), is wholly inapposite. Elrod stands for the 
proposition that the employment of non-pol icymaking state 
officials may not be conditioned on association with a 
political party; OMB has not suggested that the current 
system conditions access to contract or grant funds on 
political affiliation. Indeed, mandating that such funds 
be available to all, without regard to political 
affiliation, is wholly consistent with Elrod. 



217 



speakers happen to be private parties, and not when the 
speakers are government officials, casts into serious 
question the genuineness of the government's professed 
interest in avoiding such "distortion," and "the 
plausibility of the [government's] purported concern." 
First National Bank v. Bellotti , 435 U.S. at 793. See 
also Smith v . Daily Mail Publishing Co. , 4 4 3 U . S . 97, 
104-05 (1979); id. at 110 (Rehnquist, J., concurring in 
j udgment) .16 

In any event, the notion that the government's 
support for "political advocacy" by private parties 
impermissibly "distorts" the political system is itself 
unfounded. So long as government remains neutral with 
respect to religion, the Supreme Court has declared, the 
use of "public money to facilitate and enlarge public 
discussion . . . furthers, not abridges, . . . First 
Amendment values." Buckley v. Valeo , 424 U.S. at 92-93. 

( 3 ) The "dissenting taxpayer" rationale. Th i s 
rationale, too, must fail both because the proposed rule 
is a patently under-inclusive means of achieving the goal 
of protecting such taxpayers, and because the rule is far 



16 It bears emphasis that OMB has offered no evidence 
that such "distortion" has occurred under the current 
system, or that any appreciable portion of contract or 
grant funds has been used for purposes unrelated to the 
contracts or grants, or that the responsible agencies have 
been generally unable to recover funds improperly expended 
on such unrelated purposes. Cf. Buckley v. Valeo , 424 
U.S. at 93 n.1 27. 



218 



from the least restrictive means available for achieving 
that goal. Any notion that a taxpayer has some right to 
insist that his tax dollars not be spent on causes he 
opposes is obviously untenable: "[E]very appropriation 
made by Congress uses public money in a manner to which 
some taxpayers object." Buckley v. Valeo , 424 U.S. at 
191-92 (footnote omitted). Dissatisfaction with the uses 
to which one's tax dollars are put is an unavoidable fact 
of life under our system of government. 

Even if taxpayers had a right to direct on a 
case-by-case basis the uses to which their tax dollars 
were put/ the proposed rule does not genuinely promote 
that goal. To bar private parties from using federal 
funds to underwrite "political advocacy," without 
prohibiting government officials from using federal funds 
for such purposes, scarcely solves the dissenting 
taxpayer's problem. Moreover, even assuming that a 
taxpayer might legitimately complain that the current 
system somehow channels his tax dollars solely into causes 
he opposes, the solution, again, would be to assure that 
his tax dollars are made available to contractors and 
grantees on a completely neutral basis, so that those tax 
dollars would at least be spent on causes of which the 
taxpayer approves, as well as on those with which he 



219 

disagrees. Buckley v. Valeo , 424 U.S. at 92-93. 17 

C . The Proposed Rule's Disallowance Pro- 
visions Are Unjustifiably Burdensome 

Each of the justifications offered by OMB in 

support of the "political advocacy" rule therefore falls 

woefully short of the standards imposed by the First 

Amendment, and for this reason alone the proposed rule is 

unconstitutional. In addition, the proposed rule is 

unconstitutional because its Draconian disallowance 

provisions are unjustifiably burdensome. 



17 Nor does Abood v. Detroit Board of Education , 431 
U.S. 209 (1977), support OMB ' s position. A federal 
contractor or grantee executing statutory program 
responsibilities can hardly be likened to a labor union 
organized for collective bargaining purposes, and the 
taxpayers whose tax dollars are made available to such 
contractors or grantees through the federal government can 
hardly be likened to union members. Moreover, although 
the Supreme Court in Abood held that individuals who are 
forced by law to help defray the expenses of a labor union 
may object to the use of their contributions for political 
purposes unrelated to collective bargaining activities, 
the Court in Abood also ruled that such individuals could 
not object to the use of their contributions for advocacy 
activities germane to "the cause which justified bringing 
the group together." 431 U.S. at 222-23, quoting 
International Association of Machinists v. Street , 367 
U.S. 740, 778 (1961) (Douglas, J., concurring") - ; Surely no 
analogy to Abood can therefore invalidate compelled 
contribution by taxpayers to "political advocacy" by a 
federal contractor or grantee on matters germane to the 
federal contract or grant. 



20-644 0—83 15 



220 



Under the current system, recipients of federal 
funds may separate out that portion of their activities 
devoted to nonallowable purposes when computing their 
costs under a contract, or when allocating their expenses 
under a grant. The "political advocacy" rule would 
preclude such an approach. An officer of a defense 
contractor who spends 20% of his time on activities deemed 
to constitute "political advocacy" under the proposed rule 
could have none of his salary paid out of federal funds, 
even if he devoted the other 80% of his time to allowable 
activity. Sec. (f)(1)(a). A public health insurer that 
devotes 15% of its energy to "political advocacy" could 
use no federal funds to pay the -rent for the building at 
which it engaged in such disallowed activity, even if the 
remaining 85% of the activities in which the insurer 
engaged on the premises were allowable. Sec. (f)(2)(a). 

The upshot of these disallowance provisions is 
that any individual or organization that seeks to receive 
federal contract or grant funds must literally split, 
amoeba-like, in two if such individual or organization 
wishes to engage in "political advocacy" and perform under 
a federal contract or grant contemporaneously. This, 
of course, is impossible in the case of individual 
grantees. A nonprofit organization would be required to 



221 



have two executive directors -- one to administer the 
contract or grant, the other to serve organization purposes 
involving "political advocacy." An association of state and 
local governments would be required to rent, furnish, and 
staff two suites of offices -- one to use for contract or 
grant purposes, the other to use for association purposes 
involving "political advocacy." 

As a practical matter, this is an impossibility 
for any organization which provides service to the public 
— such as a public health organization, a domestic 
counselling service, or any public service provider. This 
is so because, by definition, a public service provider 
must necesssarily advocate the viewpoint of its 
constituency ( e.g. , those whose interests are at stake in 
family planning counselling or the provision of housing for 
the elderly). Furthermore, fundraising by any private 
organization necessarily involves advocacy of that 
organization's point of view in such a way as to influence 
public opinion. See Buckley v. Valeo , 424 U.S. at 20-21 
(recognizing that political solicitation and contribution are 
themselves expressive acts); id. at 241, 244 (Burger, C.J., 
concurring in part and dissenting in part). 

There is simply no justification for this over- 
whelming burden on "political advocacy." To the extent 
that such advocacy is actually related to grant or con- 
tract purposes, such burdens are wholly irrational. 



222 



Nor are the proposed disallowance provisions likely to 
simplify contract or grant administration for the government, 
since those provisions do not eliminate any potential for 
subterfuge, and in fact magnify policing difficulties by 
requiring government officials to closely monitor both the 
quality and quantity of each recipient's activities under the 
vaguely-defined "political advocacy" rubric. Even if the 
proposed disallowance provisions might indeed simplify 
contract or grant administration, the fact that they might do 
so could not justify the burdens imposed. See Schneider v. 
New Jersey , supra . 

But the true evil of OMB's proposed disallowance 
provisions involves more than their irrationality. For 
the proposed disallowance provisions would tend to 
disqualify from receiving contract or grant funds those 
organizations that could not afford to split in two in 
order to engage in "political advocacy" while performing a 
federal contract or grant. The expense of duplication 
imposed by the proposed disallowance provisions might well 
be prohibitive in many instances, and individuals or 
organizations might thus be forced to forgo "political 
advocacy" altogether in order to qualify for federal con- 
tract or grant funds. In this respect, the proposed rule 
would impermissibly condition the receipt of public bene- 
fits upon the sacrifice of constitutional rights. See, 



223 



e.g. , Frost & Frost Trucking Co. v. Railroad Commission , 
271 U.S. 583, 593-94 (1926); Sherbert v. Verner, 374 U.S. 
398, 404 (1963); Wieman v. Updegraff, 344 U.S. 183, 192 
(19 5 2) ; Western & Southern Life Insurance Co. v . State 
Board of Equalization , 101 S. Ct . 2070, 2077 (1981). The 
government may not impose financial restrictions on First 
Amendment rights without regard to the deterrent effect of 
such restrictions on all but those groups blessed with a 
"full purse." Murdock v. Pennsylvania , 319 U.S. 105, 112 
(1943) . 

Indeed, if the withholding of an otherwise 
available tax benefit because of one's exercise of a 
protected right is a forbidden penalty on the exercise of 
such right, see Speiser v. Randall , 357 U.S. 513, 518 
(19 58); First Unitarian Church v. County of Los Angeles , 357 
U.S. 545 (1958), it is difficult to understand why the 
withholding of otherwise available contract or grant funds 
because of one's desire to engage in "political advocacy" 
without costly duplication of facilities and staff would not 
also constitute a forbidden penalty on the exercise of 
protected rights. The duplication requirement would in 
effect penalize those individuals and groups committed to 
"political advocacy," while favoring those individuals and 
groups not so committed. Cf . Yick Wo v. Hopkins , 118 U.S. 
356, 369 (1886). 



224 



For these reasons, the "political advocacy" rule 
would be unjustifiably burdensome even if the rule's 
objectives were compelling, and even if no less 
restrictive means were available to serve those objectives 
than the flat disallowance of the use of federal funds to 
underwrite the proscribed activities. But even if, in 
addition, the "political advocacy" rule's disallowance 
provisions themselves could be justified, the rule would 
nevertheless offend the First Amendment for the further 
reasons set forth below. 

II. The Definition of "Political Advocacy" is 
Impermissibly Vague . 

The proposed rule defi-nes "political advocacy" 

with varying degrees of clarity. On the one hand, 

"political advocacy" is defined as supporting a political 

action committee in various specified ways, Sec. (b)(2), 

and as participating in or contributing to the expenses of 

litigation as an amicus curiae, Sec. (bHS). 1 ^ other 



18 That participation as an amicus curiae may be a 
clearly defined activity does not mean, of course, that 
any proscription of the use of federal funds to underwrite 
such activity is automatically valid. Whatever other 
reasons may be available to justify proscribing the use of 
federal funds for amicus curiae participation, the use of 
such funds for that purpose cannot be proscribed on the 
ground that the activity involved constitutes "political 
advocacy," for such a motive is impermissibly 
content-based. 



225 



aspects of the definition of "political advocacy," on the 
other hand, are quite vaguely defined. Thus, all attempts 
to influence the outcome of any popular vote, Sec. (b)(1), 
or to influence any governmental decision either through 
attempts to affect the opinions of the general public or 
any segment thereof, Sec. (b)(3), or though "communica- 
tions" with any public official or government body, Sec. 
(b)(4), are defined as "political advocacy." 19 As 
noted above, this definition of "political advocacy" could 
encompass virtually any statement or action by a recipient 
of federal grant or contract funds that has any effect on 
anybody . 

But the rule's definit-ion of "political 
advocacy" nowhere explains what constitutes an "attempt" 
to "influence" a popular vote or a governmental decision 
-- expression meant to persuade rather than simply to 
inform. And no reliable distinction between "neutral" 
expression and "political advocacy" is indeed possible. 
Certainly the two kinds of expression cannot be 
distinguished on the basis of their content: Dry 
recitations of fact are often far more influential than 
impassioned pleas. Nor may the two types of speech be 



19 Also defined as "political advocacy" is any support 
provided by a recipient of federal grant or contract funds 
to any organization "that has political advocacy as a 
substantial organizational purpose, or that spends 
$100,000 or more per year on activities constituting 
political advocacy." Sec. (b)(6). 



226 



distinguished on the basis of their effect : Surely it 
would be irrational to define "advocacy" as expression 
that does in fact persuade. Finally, it would be imper- 
missible to distinguish "advocacy" from "neutral" expres- 
sion on the basis of the speaker's perceived intent ; That 
way lies censorship in its most pernicious form. As the 
Supreme Court has declared in an analogous context: 

[T]he supposedly clear-cut distinction 
between discussion, laudation, general 
advocacy, and solicitation puts the speaker 
. . . wholly at the mercy of the varied 
understanding of his hearers and 
consequently of whatever inference may be 
drawn as to his intent and meaning. 

Such a distinction offers no security 
for free discussion. In these conditions 
it blankets with uncer-tainty whatever may 
be said. It compels the speaker to hedge 
and trim. He must take care in every word 
to create no impression that he means [what the 
government has precluded him from saying] . 

Thomas v. Collins , 323 U.S. at 535. Cf . In re Primus , 

436 U.S. 412, 433 (1978). 20 

Because of the vagueness with which "political 

advocacy" is defined under the proposed rule, recipients 

of federal grant and contract funds would be discouraged 



20 In a vain effort to distinguish between expression 
meant to inform and expression meant to persuade, the 
proposed rule exempts from its definition of "political 
advocacy" "[m]aking available the results of nonpartisan 
analysis, study, or research, the distribution of which is 
not primarily designed to influence the outcome of any 
[popular vote] or any governmental decision." Sec. (c)(1). 
How it can be determined whether any given document is truly 
"nonpartisan," and is "not primarily designed" to achieve a 
forbidden effect, is not explained. 



227 



from using federal funds to engage in any activity that 
could possibly be construed by hostile officials as "at- 
tempts" to "influence" any popular vote or governmental 
decision. Contractors and grantees would be required "to 
'steer far wider of the unlawful zone,' than if the bound- 
aries of the forbidden areas were clearly marked[,] . . . 
restricting their conduct to that which is unquestionably 
safe." Baggett v. Bullitt , 377 U.S. 360, 372 (1964), quoting 
Speiser v. Randall , 357 U.S. 513, 526 (1958). 

As a result, performance of federal contracts and 
grants would be inescapably impaired. Worse still, recipi- 
ents would be encouraged not to engage in potential "politi- 
cal advocacy" even with non -government funds, lest such 
activity invite suspicion of an improper purpose in their use 
of federal funds. 21 For under the "political advocacy" 
rule, recipients would be unable to tell whether they had 
used federal funds to underwrite proscribed activities: 
"'[M]en of common intelligence must necessarily guess at [the 
rule's] meaning.'" Hynes v. Mayor and Council of Oradell, 



21 Similar consequences may be expected to follow from 
the rule's proscription of the use of federal funds to 
underwrite "communications" with public officials or 
government bodies -- a proscription that theoretically 
could reach newspaper advertisements, public speeches, 
testimony before government bodies, one-on-one social 
contact with officials, or, indeed, any message uttered 
within earshot of a public servant. 



228 



425 U.S. 610, 620 (1976), quoting Connally v. General 
Construction Co. , 269 U.S. 385, 391 (1926). 

Government officials, on the other hand, would 
have no guide other than their own prejudices for 
determining whether a particular activity of a particular 
recipient is proscribed; the potential for "'arbitrary and 
discriminatory enforcement'" is clear, see Smith v. 
Goguen , 415 U.S. 566, 573 (1974), for the rule plainly 
"furnishes a convenient tool for 'harsh and discriminatory 
enforcement . . . against particular [organizations] 
deemed to merit [official] displeasure. ' " Papachristou v. 
City of Jacksonville , 405 U.S. 156, 170 (1972), quoting 
Thornhill v. Alabama , 310 U.S. 8-8, 97-98 (1940). 

Thus, for example, an arts group's performance 
of a play with an anti-war theme could be construed as 
"political advocacy" intended to influence public opinion 
against increased military expenditures or some aspect of 
current foreign policy; a corporate executive's address to a 
meeting of the Business Roundtable on some issue of topical 
interest could be construed as "political advocacy" intended 
to shape opinion on that issue, and hence to "influence" 
governmental decisions; or the sponsorship by a group of 
state and county governments of a forum on issues of concern 
to such governments could be construed as "political 
advocacy," intended as a "communication" with 



229 



those public officials who attend the forum, or who are 
otherwise apprised of the proceedings, for the purpose of 
"influencing" governmental decisions. 

In such cases, much could turn on the message es- 
poused, when government officials undertook to decide whether 
or not the expression at issue constituted "political advo- 
cacy." The First Amendment cannot countenance any such 
regime of arbitrary government power; the chilling potential 
for such subjective, content-based determinations by govern- 
ment is sufficient to render such vague language unconstitu- 
tional on its face. See , e.g. , Big Mama Rag, Inc. v. United 
States , 631 F.2d 1030, 1034-39 (D.C. Cir. 1980) (invalidating 
Treasury regulation definition o-f "educational" on vagueness 
grounds). 22 For this reason, too, the proposed rule 
must be rejected. 



III. The "Political Advocacy" Rule Unconstitu - 
tionally Discriminates Among Those To Whom 
It Will Directly or Indirectly Apply. 



The final set of objections to the "political 
advocacy" rule is perhaps the most telling, for these 
objections go to the fundamental sincerity of the rule. 



22 Although in some circumstances a narrowing con- 
struction of vague language may avoid the "constitutional 
deficiencies" of such vagueness, Buckley v. Valeo , 424 
U.S. at 43, no such narrowing construction is available 
here, where the proposed rule encompasses virtually all 
speech that touches on "political" issues, and not simply 
speech, for example, "advocat [ ing] the election or defeat 
of a clearly identified candidate for federal office." 
Id. at 44 (footnote omitted). 



230 



Even a cursory review of the rule's provisions reveals at 
once that the rule's target is not the use of federal 
funds to underwrite "political advocacy" as such, but 
rather the use of federal funds for such purposes without 
a special invitation from the government to do so. Thus, 
the rule excludes from the definition of "political 
advocacy" the provision of "technical advice or 
assistance" to a governmental body at its request, Sec. 
(c)(2), and participation in litigation as an amicus 
curiae if the federal contract or grant expressly so 
authorizes, Sec. (c)(3). 

Needless to say, the provision of "technical 
advice and assistance" to a gove-rnmental body may be far 
more influential on governmental decisions than an adver- 
tisement addressed to the very same subject in the 
Washington Post , and there is no rational basis at all for 
designating amicus curiae participation as "political 
advocacy" only when the government has not expressly 
authorized it. 2 ^ These exemptions, then, discrim- 
inate between those whom the government has invited to 
influence its decisions, and those to whom it has extended 
no such invitation. 



23 Although the Acting Deputy Associate Director for 
Administration correctly notes that "attempts to influence 
policy through the judicial process are a form of 
political advocacy," 48 Fed. Reg. 3350 (1983), that fact 
only makes it more difficult, not easier, to justify 
government restrictions on litigation activity. 



231 



In addition, the "political advocacy" rule dis- 
criminates between those organizations that "acknowledge" 
their "political advocacy" as a "substantial organiza- 
tional purpose" and those that do not, Sec. (d)(1). The 
cost of such candor under the rule is that any use of 
federal grant or contract funds to support such organiza- 
tions is automatically disallowed. Sec. (b)(6). A more 
straightforward penalty for engaging in protected speech 
is difficult to imagine. 

Finally, the proposed rule discriminates among 
contractors and grantees on the basis of the pressures 
they are perceived to exert on their employees to join or 
support other organizations, or -to -engage in "political 
advocacy" off the job. Sec. (f)(1). These discrimina- 
tions are the most bizarre of all those embodied in the 
proposed rule, for they disallow an employee's entire 
salary not on the basis of what the employee does for the 
contractor or grantee, but rather on the basis of what the 
employee does for some other organization with his own 
money -- or what he does on his own, with or without 
making any expenditure at all. Thus, under the proposed 
rule, the salary costs of individuals who are "required or 
induced" to join or pay dues to any "political advocacy" 
organization other than a labor union are totally 
disallowed, Sec. (f)(1)(b), as are the salary costs of 



232 



individuals who are "required or induced" to engage in 
"political advocacy" during non-working hours. Id . 

These discriminations are objectionable on at 
least two grounds. First , what it means for a contractor 
or grantee to "require or induce" an employee to join or 
support another organization, or to engage in "political 
advocacy" off-hours, is an unanswered question under the 
proposed rule — an unanswered question that invites the 
arbitrary exercise of government power at the expense of 
First Amendment freedoms. For example, if most of the 
employees of a nonprofit organization happen to belong to 
the American Civil Liberties Union, will that fact give 
rise to an inference that the nonprofit organization has 
somehow "induced" its employees to join the ACLU? What is 
the test? Whose burden of proof? Or if many of an 
organization's employees undertake activities on behalf of 
anti-abortion groups in their off-hours, would that fact 
give rise to an inference that the organization had 
somehow "induced" its employees to engage in "political 
advocacy" off the job? What is the test? Whose burden of 
proof? 

By disallowing the employee's entire salary 
under either circumstance, the rule will not simply 
discourage contractors and grantees from "requiring" or 
"inducing" their employees to join or support "political 
advocacy" organizations or to engage in "political 



233 



advocacy" off the job; the result will be that employees 
of .contractors and grantees will themselves shy away from 
membership in or support for disfavored organizations or 
activities off-hours, lest their conduct be somehow 
"traced" to their employers and their salaries accordingly 
disallowed. Whether viewed as a chill on the exercise of 
protected rights either by contractors and grantees or by 
their employees, this aspect of the "political advocacy" 
rule clearly violates the First Amendmement. 

Second, even assuming that the government could 
legitimately aim to assure that salaries paid with federal 
funds by contractors or grantees could not be channeled to 
disfavored organizations or acti-vities, total disallowance 
of salaries used to any degree for such purposes is 
plainly an unjustifiable burden. More fundamentally, this 
aspect of the proposed rule impermissibly discriminates 
between organizations that may be supported by 
contributions from employees of contractors or grantees at 
the behest of their employers, and those that may not. 
Why labor unions, but not other "political advocacy" 
organizations, may benefit from employee contributions at 
the behest of contractors or grantees is wholly 
unexplained. And the rule's more general discrimination 
between "political advocacy" organizations and other 
organizations for disallowance purposes is constitutionally 
untenable as well. 

CONCLUSION 

In sum, the "political advocacy" rule is riddled 
with constitutional infirmities, and, for the reasons set 
forth above, the American Civil Liberties Union urges that 
the proposed rule not be promulgated. 



234 



ACLU Submissions 
to Additional Questions 
from Chairman Jack Brooks 



Question 1: Is there statutory -authority for the 

Administration's proDosed rule changes? 

Answer: Although we have undertaken a review 
solely of the constitutional issues 
raised by the Administration's proposed 
rule, the analysis of the Administration's 
statutory authority for the rule, prepared 
by Jack Maskell, Legislative Attorney, 
Congressional Research Service, appears 
sound. 

Question 2: Would the Administration's proposed rule 
changes favor the awarding of grants and 
contracts to organizations that are 
willing to give up their right to narticit>ate 
in the governmental process? 

Answer: Yes. The proposed rule changes would do so 
by virtue of their draconian disallowance 
Drovisions, which would forbid reimbursement 
of any portion of the salary of any person 
who devoted any time to any "political advo- 
cacy," or any portion of the expense of any 
other item devoted in any degree to "political 
advocacy." As a result of such disallowance 
. provisions, a contractor would be reauired 
to split, amoeba-like, in two in order to 
perform under a contract or grant and, at 
the same time, engage in "political advocacy." 
Few contractors or grantees could bear the 
expense of doing so; those who undertook to 
perform contracts and grants would, as a 
result, find their ability to engage in 
"political advocacy" using non - government funds 
severely restricted, and their ability to 
participate in the governmental process 
drastically curtailed. In addition, the 
very thrust of the proposed rule -changes is 
to proscribe participation in the governmental 
process under a contract or grant; by definition, 
therefore, the proposed rule changes would favor 
those organizations who were willing to perform 
contracts or grants that precluded participation 
in the governmental processes using government 
funds . 



Question 3: 



Answer : 



Would this rule encourage favoritism among 
groups in that only those who receive no 
Federal funds or those who are expressly 
invited to communicate with the Government 
would be allowed to do so without penalty? 

Yes. The rule would permit the use of 
government funds to underwrite "political 
advocacy" by those who receive a special 
invitation from government officials or 
bodies to do so; those whom government 
officials did not favor, and thus did not 
invite to speak, would be precluded from 
speaking on an equal footing with those 
whom government officials did favor, and 
hence invited to speak. 



235 

Mr. Horton. We next will hear from Mr. Donald G. Jones, ex- 
ecutive secretary of the Wisconsin Community Action Program As- 
sociation, Inc., in Madison, Wis. 

Mr. Jones formerly was the executive director of the Community 
Action Commission for the city of Madison and Dane County, Wis. 

He also was a training officer for the Leadership Institute for 
Community Development here in Washington and served nearly 12 
years in the U.S. Army with service in Germany and the Republic 
of Vietnam. He serves on the boards of a number of community or- 
ganizations and has a degree in political science from the Universi- 
ty of Wisconsin. 

STATEMENT OF DONALD G. JONES, EXECUTIVE SECRETARY, WIS- 
CONSIN COMMUNITY ACTION PROGRAM ASSOCIATION, INC., 
MADISON, WIS. 

Mr. Jones. Mr. Chairman, thank you very much for permitting 
me to be here today. 

Mr. Chairman and members of the House Government Oper- 
ations Subcommittee on Legislation, I wish to thank you for provid- 
ing me this opportunity to appear before you today to comment on 
the OMB proposed regulation that appeared in the January 24 Fed- 
eral Register on Provisions for Cost Accounting Principles for Non- 
profit Organizations under A-122. 

I understand that these regulations are to be revised shortly but 
my concerns on this issue are fundamental and generally applica- 
ble. 

Mr. Chairman, I wish to take a few minutes to highlight several 
points and respectfully request that my prepared testimony be 
made part of your hearing record. This prepared testimony has ap- 
pended to it a list of nonprofit organizations in Wisconsin that 
have asked me to speak on their behalf and I also request permis- 
sion to provide the committee with the complete list within the 
next few days. 

These organizations work with and on behalf of low-income fami- 
lies, children, senior citizens, handicapped, and blind persons and 
the developmentally disabled and mentally ill. 

Mr. Chairman and committee members, as a program adminis- 
trator who has been involved with human service programs for 
more than 14 years, I ask that the proposed revisions of A-122 be 
carefully scrutinized for the impact that they will have on the ef- 
fective, efficient operation of both nonprofit organizations and gov- 
ernment agencies at the Federal, State, and local level. 

Mr. Horton. I might say, parenthetically, I have heard from a 
number of my community action groups in my congressional dis- 
trict, which is the 29th District of New York, and I certainly am 
concerned about this issue, as you are. Your testimony is very good 
with regard to the views of the community action programs. 

Mr. Jones. I appreciate your concern, Mr. Horton. 

My concerns are as follows: First, at the outset, it is important to 
note that even without the adoption of the proposed revisions to A- 
122 there is no question that nonprofit organizations may not lobby 
or participate in political action with Federal grant or contract 



20-644 0—83 16 



236 

funds. Clear requirements to this effect have been enacted by Con- 
gress. 

The nonprofit organizations opposing these regulations do not in 
any way challenge the validity or rationale of these requirements. 
Nor do the organizations challenge the enforcement mechanisms 
designed and implemented by Congress and the administration to 
make sure that these requirements are met. 

Such enforcement efforts typically include program audits, gen- 
eral accounting investigations, and other means of assuring that 
Federal funds are not used for lobbying and political action. 

The opposition to the A- 122 revisions revolves around those pro- 
visions which are considered to be unnecessary and illegal expan- 
sions of the existing requirements. 

Second, the proposed revisions would expand the scope of re- 
stricted activities to include virtually all forms of participation in 
governmental decisionmaking at the Federal, State, and local level. 

Thus, for example, the circular's restrictions would apply to 
almost every effort to communicate at all levels of government 
with officials or employees or the general public on administrative 
decisions or policies. 

In Wisconsin private nonprofit and charitable organizations such 
as those I represent here today interact regularly with agencies at 
the town, village, city, county, and State level as well as with Fed- 
eral agencies. 

In our State, nonprofits are both officially encouraged and ex- 
pected to freely communicate with elected and appointed officials 
and administrators on technical and policy matters affecting these 
groups and individuals. 

We in Wisconsin perceive advocacy and technical cooperation as 
a positive plus. 

This proposed revision would reach out from the Federal level of 
Government to thwart and disrupt the historic cooperation be- 
tween Government and nonprofit organizations which has resulted 
over the years in outstanding services and strong governmental fi- 
nancial and policy leadership in assisting the disadvantaged and 
the community. 

I currently serve on the board of directors of the Wisconsin 
Council on Human Concerns which was founded by the Governor 
of the State over 100 years ago to provide a means through which 
governmental leaders, professional human service providers and, 
community leaders can regularly confer and actively work with the 
State to improve services and policies. 

The council is comprised of leaders in the private sector, the Gov- 
ernment, and nonprofit organizations of all kinds. This revision of 
A-122 would make the participation of many members in this his- 
toric group impossible and in so doing undermine the value and ef- 
fectiveness of this successful effort. 

Third, I am concerned that these regulations seek to interfere 
with and regulate communications and relationships between non- 
profit organizations and the general public. 

In response to the increased need for assistance to individuals 
and families and cutbacks in resources from all quarters, nonprofit 
organizations came together 2 years ago in a broad working coali- 
tion called the Wisconsin Difference. 



237 

The Wisconsin Difference Coalition has three major goals: (1) to 
assess the absolute minimum needs in human services; (2) to commu- 
nicate to State and local governments our best professional assess- 
ment on solutions to meet those needs; and (3) to insure cooperation 
and coordination of programs to maximize effective allocation of 
scarce resources. 

This proposal would damage the coalition by: (A) It would shut 
off our ongoing dialog with governments on how to stretch the 
available dollars with the maximum of services possible. 

For example, as knowledgeable technicians, we have been able to 
analyze and prioritize key programs which meet critical needs and 
have both low operational budgets and high cost effectiveness. 
These programs will be retained in the State budget because they 
prevent high remedial expenditures and will pay for themselves in 
the short and long term. 

(B) It would drastically curtail, if not eliminate, the dialog within 
the human service agency community which is vital to the efficient 
delivery of services. 

Most of the agencies involved have Federal grants and contracts. 
A few do not. Those with Federal dollars would rightfully be fear- 
ful that after-the-fact costs charged to Federal grants could be dis- 
allowed merely because they had participated in discussions with 
agencies who, with private funds, had spoken out on behalf of their 
constituencies in a manner defined by OMB as political activity. It 
would have a deep chilling effect on all. It has begun to do so al- 
ready. 

Fourth, the adoption of the proposed A- 122 revisions would result 
in added costs and paperwork for the Federal Government and its 
grantees and contractors. 

Many nonprofit organizations are relatively small and receive 
funds from various public and private resources. Cost sharing, or 
cost allocation, is the common way for these organizations to maxi- 
mize the use of resources, including Federal dollars. 

A Federal grant may pay for one-half of a typewriter, or two- 
thirds of the time of a staff person. The proposed restrictions would 
eliminate this way of doing business. 

A Federal grant would have to pay for the full cost of typewriter 
or staff persons, even if only part-time use was required. 

Another problem would be presented concerning the time of an 
executive director who is responsible for overseeing the operation 
of the agency which may run programs funded with Federal, State, 
and private money. 

Grants and contracts usually demand a share of the time by the 
executive director to assure top-level management and accountabil- 
ity. The board of directors of any organization also demands that 
the chief executive be fully responsible for all operations. 

The proposed regulations would make it impossible for any ex- 
ecutive director to fulfill both these essential functions. Thus, this 
regulation would reach far beyond the Federal grant activity or 
contract and dictate what a private corporation, chartered under 
State law, can and cannot do in carrying out the provisions of that 
charter with private funds. 

Mr. Chairman and members of the committee, the proposed revi- 
sions of A- 122 reach out and attack the rights and obligations of 



238 

the private sector as well as voluntary organizations which have 
both Federal and private dollars, to speak out on behalf of low- 
income families, of disabled and mentally ill people, of young chil- 
dren and of frail senior citizens, who cannot speak for themselves, 
and depend on our help for day to day survival. 

At this point it may be well to point out there are many types of 
groups to be affected by the proposed A- 122 revisions and their 
counterparts for Federal contracts: large national service organiza- 
tions and private companies, as well as smaller local organizations 
which provide direct help to individuals. 

Community action agencies are a prime example of this latter 
category. Unlike the larger organizations, CAAS, and the groups 
like them, simply will not be able to participate in the kind of free- 
speech activities covered by the proposed A- 122 revisions if they 
cannot mix or allocate costs in some reasonable way. 

They cannot afford to have two of everything: two executive di- 
rectors, two buildings, two printing presses, et cetera, one for feder- 
ally funded activity and one for communication to Federal, State, 
and local government officials and the public regarding matters 
critical to their programs. Larger organizations can do that. Small- 
er ones, particularly those serving the poor, cannot. 

Along these lines I must express concern about the most recent 
issuance from OMB in which the administration indicated several 
areas in which it was actively soliciting specific proposals from af- 
fected parties. 

These areas went primarily to the definition of the term "politi- 
cal advocacy." They did not address the cost allocation issue so 
critical to the smaller nonprofits. 

The issuance of this paper and other recent developments sug- 
gest that OMB may be offering a compromise to quell the tremen- 
dous controversy regarding A- 122. The only problem is the appar- 
ent direction of the compromise would help only large organiza- 
tions, not the smaller poverty organizations upon whose behalf I 
speak. They would remain out in the cold. 

Fifteen years ago this month, February, I went through the Tet 
offensive in Vietnam. Little did I realize that I would have to fight 
again to permit the private, voluntary sector in the United States 
to communicate with Government agencies that fund human serv- 
ice programs or the needy citizens who are served. I urge you to 
look with great skepticism on these new restrictions and thank you 
for holding hearings. 

I am particularly pleased with the level of skepticism which you 
and the chairman have expressed this morning. I want to thank 
you very much for holding these hearings and for giving this a 
public airing. 

[Mr. Jones' prepared statement follows:] 



239 

TESTIMONY OF 

DONALD JONES 
MADISON, WISCONSIN 

BEFORE 



HOUSE GOVERNMENT OPERATIONS 
SUBCOMMITTEE ON LEGISLATION 

MARCH 1, 19 83 



ORGANIZATIONS REPRESENTED 



LEAGUE OF WOMEN VOTERS-WISCONSIN 
WISCONSIN COMMUNITY ACTION PROGRAM ASSOCIATION, INC. 

WISCONSIN NUTRITION PROJECT 
WISCONSIN ASSOCIATION OF FAMILY AND CHILDREN' AGENCIES 

UNITED CEREBRAL PASLY OF WISCONSIN 

CENTER FOR PUBLIC REPRESENTATION 

WISCONSIN COUNCIL ON HUMAN CONCERNS 

WISCONSIN DISABILITY COALITION 

WISCONSIN EARLY CHILDHOOD ASSOCIATION 

YOUTH POLICY AND LAW CENTER 

ALLIANCE FOR THE MENTALLY ILL 

WISCONSIN ASSOCIATION OF RUNAWAY SERVICES 

PLANNED PARENTHOOD OF WISCONSIN 
NATIONAL ASSOCIATION OF SOCIAL WORKERS, WISCONSIN CHAPTER 

WI SCONS IN WOMEN'S NETWORK 

WISCONSIN ASSOCIATION OF HEAD START DIRECTORS 



240 



MR CHAIRMAN AND MEMBERS OF THE HOUSE GOVERNMENT OPERATIONS SUBCOMMITTEE 
ON LEGISLATION , I WISH TO THANK YOU FOR PROVIDING ME THIS OPPORTUNITY 
TO APPEAR BEFORE YOU TODAY TO COMMENT ON THE OMB PROPOSED REGULATION 
THAT APPEARED IN THE JANUARY 24th FEDERAL REGISTER ON REVISIONS FOR 
COST ACCOUNTING PRINCIPLES FOR NON PROFIT ORGANIZATIONS UNDER A-122. 
I UNDERSTAND THAT THESE REGULATIONS ARE TO BE REVISED SHORTLY' BUT MY 
CONCERNS ON THIS ISSUE ARE FUNDAMENTAL AND GENERALL^'APPLICABLE". - 

MR CHAIRMAN, I WISH- TO TAKE A FEW MINUTES TO HIGHLIGHT SEVERAL POINTS 
AND RESPECTFULLY REQUEST THAT MY PREPARED TESTIMONY BE MADE PART OF 
YOUR HEARING RECORD. THIS PREPARED TESTIMONY HAS APPENDED TO IT A 
LIST OF NON PROFIT ORGANIZATIONS IN WISCONSIN THAT HAVE ASKED ME TO 
SPEAK ON THEIR BEHALF AND I ALSO REQUEST PERMISSION TO PROVIDE THE 
COMMITTEE WITH THE COMPLETE LIST WITHIN THE NEXT FEW DAYS. THESE 
ORGANIZATIONS WORK WITH AND ON BEHALF OF LOW INCOME FAMILIES, CHILDREN, 
SENIOR CITIZENS, HANDICAPPED AND BLIND PERSONS AND THE DEVELOPMENTALLY 
DISABLED AND MENTALLY ILL. 

MR CHAIRMAN AND COMMITTEE MEMBERS, AS A PROGRAM ADMINISTRATOR, WHO 

HAS BEEN INVOLVED WITH HUMAN SERVICE PROGRAMS FOR MORE THAN li YEARS, 

I ASK THAT THE PROPOSED REVISIONS OF A-122 BE CAREFULLY SCRUTININZED 

FOR THE IMPACT THAT THEY WILL HAVE ON THE EFFECTIVE, EFFICIENT OPERATION O 

30TH NON PROFIT ORGANIZATIONS AND GOVERNMENT AGENCIES AT THE FEDERAL 

STATE AND LOCAL LEVEL. .MY CONCERNS ARE AS FOLLOV7S : 

i 

FIRST AT THE OUTSET, IT IS IMPORTANT TO NOTE THAT EVEN WITHOUT 

THE ADOPTION OF THE PROPOSED REVISIONS TO A-122, THERE IS NO QUESTION 
THAT KON PROFIT ORGAN! ZATIONS KAY NOT LOB3Y OR PARTICIPATE IN POLITICAL 



241 



ACTION WITH FEDERAL GRANT OR CONTRACT FUNDS. CLEAR REQUIREMENTS TO 
THIS EFFECT HAVE BEEN ENACTED BY CONGRESS. THE NON PROFIT ORGANIZATIONS 
OPPOSING THESE REGULATIONS DO NOT IN ANY WAY CHALLENGE THE VAILIDITY 
OR RATIONALE OF THESE REQUIREMENTS. NOR DO THE ORGANIZAIONS CHALLENGE 
THE ENFORCEMENT MECHANISMS DESIGNED AND IMPLEMENTED BY CONGRESS 
AND THE ADMINISTRATION TO MAKE SURE THAT THESE REQUIREMENTS ARE MET 
SUCH ENFORCEMENT EFFORTS TYPICALLY INCLUDE PROGRAM AUDITS, GENERAL 
ACCOUNTING INVESTIGATIONS AND OTHER MEANS OF ASSURING THAT 
FEDERAL FUNDS ARE NOT USED FOR LOBBYING AND POLITICAL ACTION. THE 
OPPO SITION TO THE A-122 REVISIONS REVOLVES AROUND THOSE PROVISIONS 
WHICH ARE CONSIDERED TO BE UNNECESSARY AND ILLEGAL EXPANSIONS OF 
THE EXISTING REQUIREMENTS . 

SECOND THE PROPOSED REVISIONS WOULD EXPAND THE SCOPE OF RESTRICTED 
ACTIVITIES TO INCLUDE VIRTUALLY ALL FORMS OF PARTICIPATION IN 
GOVERNMENTAL DECISION MAKING AT THE FEDERAL, STATE AND LOCAL LEVEL. 
THUS FOR EXAMPLE, THE CIRCULAR'S RESTRICTIONS WOULD APPLY TO ALMOST 
EVERY' EFFORT TO COMMUNICATE AT ALL LEVELS OF GOVERNMENT WITH OFFICIALS 
OR EMPLOYEES OR THE GENERAL PUBLIC ON ADMINISTRATIVE DECISIONS OR 
POLICIES. IN WISCONSIN, PRIVATE NON PROFIT AND CHARITABLE ORGANIZATIONS 
SUCH AS THOSE I REPRESENT HERE TODAY, INTERACT REGULARLY WITH AGENCIES 
AT THE TOWN, VILLAGE, CITY, COUNTY AND STATE LEVEL AS WELL AS WITH 
FEDERAL AGENCIES. IN OUR STATE, NON PROFITS ARE 30TH OFFICALLY 
ENCOUP.AGED AND EXPECTED TO FREELY COMMUNICATE WITH ELECTED AND APPOINTED 
OFFICIALS AND ADMINISTRATORS ON TECHNICAL AND POLICY MATTERS AFFECTING 
THESE GROUPS AND INDIVIDUALS. 'WE, IN WISCONSIN, PRECEIVE ADVOCACY 
AND TECHNICAL COOPERATION AS A POSITIVE VALUE. THIS PROPOSED REVISION 
WOULD REACH OUT FRO" THE FEDERAL LEVEL OF GOVERNMENT TO THWART AND 



DISRUPT THE HISTORIC COOPERATION BETWEEN" GOVERNMENT AND NCN PROFIT 



242 



ORGANIZATIONS WHICH HAS RESULTED OVER THE YEARS IN OUTSTANDING 
SERVICES AND STRONG GOVERNMENTAL FINANCIAL AND POLICY LEADERSHIP 
IN ASSISTING THE DISADVANTAGED AND THE COMMUNITY . I CURRENTLY SERVE 
ON THE BOARD OF DIRECTORS OF THE WISCONSIN COUNCIL ON HUMAN CONCERNS 



WHICH WAS FOUNDED BY THE GOVERNOR OF THE STATE OVER 100 YEARS AGO 
TO PROVIDE A MEANS THROUGH WHICH GOVERNMENTAL LEADERS, PROFESSIONAL 
HUMAN SERVICE PROVIDERS AND COMMUNITY LEADERS CAN REGULARLY CONFER 
AND ACTIVELY WORK WITH THE STATE TO IMPROVE SERVICES AND POLICIES. 
THE COUNCIL IS COMPRISED OF LEADERS IN THE PRIVATE SECTOR, THE 
GOVERNMENT AND NON PROFIT ORGANIZATIONS OF ALL KINDS. THIS REVISION 
OF A-122 WOULD MAKE THE PARTICIPATION OF MANY MEMBERS IN THIS 
HISTORIC GROUP IMPOSSIBLE AND IN SO DOING UNDERMINE THE VALUE :AND 
EFFECTIVENESS OF THIS SUCCESSFUL EFFORT. 

THIRD I AM CONCERNED THAT THESE REGULATIONS SEEK TO INTERFERE WITH 
AND REGULATE COMMUNICATIONS AND RELATIONSHIPS BETWEEN NON PROFIT 
ORGANIZATIONS AND THE GENERAL PUBLIC. IN RESPONSE TO THE INCREASED 
NEED FOR ASSISTANCE TO INDIVIDUALS AND FAMILIES AND CUTBACKS IN RESOURCES 
FROM ALL QUARTERS, NON PROFIT ORGANIZATIONS CAME TOGETHER TWO YEARS 
AGO IN A BROAD WORKING COALITION CALLED THE WISCONISIN DIFFERENCE . 
WISCONSIN DIFFERENCE HAS THREE IMPORTANT GOALS: 1) TO ASSESS THE ABSOLUTE 
MINIMUM NEEDS IN HUMAN SERVICES; 2) TO COMMUNICATE TO STATE AND LOCAL 
GOVERNMENTS OUR BEST PROFESSIONAL ASSESMENT ON SOLUTIONS TO MEET THOSE 
NEEDS AND 3) TO INSURE COOPERATION AND COORDINATION OF PROGRAMS TO 
MAXIMIZE EFFECTIVE ALLOCATION OF SCARCE RESOURCES. THIS PROPOSAL 
WOULD SEVERELY DAMAGE THE COALITION BY: 

A) IT WOULD SHUT OFF OUR ONGOING DIALOGUE WITH GOVERNMENTS ON HOW 
TO STRETCH THE AVAILABLE DOLLARS WITH THE MAXIMUM OF SERVICES 
POSSIBLE. FOR EXAMPLE, AS KNOWLEDGEABLE TECHNICIANS , WE HAVE 



243 



BEEN ABLE TO ANALYZE AND PRIORITIZE KEY PROGRAMS WHICH 
MEET CRITICAL NEEDS AND HAVE BOTH LOW OPERATIONAL BUDGETS 
AND HIGH COST EFFECTIVENESS. THESE PROGRAMS WILL BE 
RETAINED IN THE STATE BUDGET BECAUSE THEY PREVENT 
REMEDIAL EXPENDITURES AND WILL PAY FOR THEMSELVES IN THE 
SHORT AND LONG TERM. 
■ B) IT WOULD DRASTICALLY CURTAIL, IF NOT ELIMINATE, THE DIALOGUE 
WITHIN THE HUMAN SERVICE AGENCY COMMUNITY WHICH IS VITAL TO 
THE EFFICIENT DELIVERY OF SERVICES. MOST OF THE AGENCIES INVOLVED 
HAVE FEDERAL GRANTS AND CONTRACTS, A FEW DO NOT. THOSE WITH 
FEDERAL DOLLARS WOULD RIGHTFULLY BE FEARFUL THAT AFTER THE 
FACT, COSTS CHARGED TO FEDERAL GRANTS COULD BE DISALLOWED 
MERELY BECAUSE THEY HAD PARTI CPATED IN DISCUSSIONS WITH AGENCIES 
WHO, WITH PRIVATE FUNDS, HAD SPOKEN OUT ON BEHALF OF THEIR 
CONSTITUENCIES IN' A MANNER DEFINED BY OMB AS "POLITICAL 
ACTIVITY." IT WOULD HAVE A DEEP CHILLING EFFECT ON ALL. 

FOURTH , THE ADOPTION OF THE PROPOSED A-122 REVISIONS WOULD RESULT IN 
ADDED COSTS AND PAPERWORK FOR THE FEDERAL GOVERNMENT AND ITS GRANTEES 
AND CONTRACTORS. MANY NON PROFIT ORGANIZATIONS ARE RELATIVELY SMALL 
AND RECEIVE FUNDS FROM VARIOUS PUBLIC AND PRIVATE RESOURCES. COST 
SHARING - OR COST ALLOCATION - IS THE COMMON WAY FOR THESE ORGANIZATIONS 
TO MAXIMIZE THE USE OF RESOURCES, INCLUDING FEDERAL DOLLARS. A FEDERAL 
GRANT KAY PAY FOR ONE HALF OF A TYPEWRITER, OR TWO THIRDS OF THE TIME 
OF A STAFF PERSON. THE PROPOSED RESTRICTIONS WOULD ELIMINATE THIS 
WAY OF DOING 3'JSINESS. A FEDERAL GRANT WOULD HAVE TO PAY FOR THE FULL 
COST OF TYPEWRITER CP. STAFF PERSONS - EVEN IF ONLY PART TIME USE WAS 



244 



REQUIRED. ANOTHER PROBLEM WOULD BE PRESENTED CONCERNING THE TIME 

OF AN EXECUTIVE DIRECTOR WHO IS RESPONSIBLE FOR OVERSEEING THE OPERATION 

OF THE AGENCY WHICH MAY RUN PROGRAMS FUNDED WITH FEDERAL, STATE AND 

PRIVATE MONEY. GRANTS AND CONTRACTS USUALLY DEMAND A SHARE OF THE 

TIME BY THE EXECUTIVE DIRECTOR TO ASSURE TOP LEVEL MANAGEMENT. AND 

ACCOUNTABILITY. THE BOARD OF DIRECTORS OF ANY ORGANI ZATION ALSO 

DEMAND THAT THE CHIEF EXECUTIVE BE FULLY RESPONSIBLE FOR ALL 

OPERATIONS. THE PROPOSED REGULATIONS WOULD MAKE IT IMPOSSIBLE FOR 

ANY EXECUTIVE DIRECTOR TO FULFILL BOTH THESE ESSENTIAL FUNCTIONS. 

THUS, THIS REGULATION WOULD REACH FAR BEYOND THE FEDERAL GRANT ACTIVITY 

OR CONTRACT AND DICTATE WHAT A PRIVATE CORPORATION, .CHARTERED UNDER 

STATE LAW, CAN AND CAN NOT DO IN CARRYING OUT THE PROVISIONS OF 

THAT CHARTER KITH PRIVATE FUNDS. 

MR CHAIRMAN AND MEMBERS OF THE COMMITTEE, T HE PROPOSED REVISIONS OF 
A-12 2 REACH OUT AND ATTACK THE RIGHTS AND OBLIGATION S OF THE PRIVATE 
SECTOR AS WELL AS VOLUNTARY ORGANIZATIONS WHICH HAVE BOTH FEDERAL 
AND PRIVATE DOLLARS - TO SPEAK OUT ON BEHALF OF LOW INCOME FAMILIES, 
OF DISABLED AND MENTALLY ILL PEOPLE, OF YOUNG CHILDREN AND OF FRAIL 
SENIOR CITIZENS- WHO CAN NOT SPEAK FOR THEMSELVES AND DEPEND ON OUR 
HELP FOR DAY TO DAY SURVIVAL. 

AT THIS POINT , IT MAY BE WELL TO POINT OUT THERE ARE MANY TYPES OF 
GROUPS TO BE AFFECTED BY THE PROPOSED A-122 REVISONS AND THEIR COUNTER- 
PARTS FOR FEDERAL CONTRACTORS: LARGE NATIONAL SERVICE ORGANIZATIONS 
AND PRIVATE COMPANIES, AS WELL AS SMALLER LOCAL ORGANIZATIONS WHICH 
PROVIDE DIRECT HELP TO INDIVIDUALS. COMMUNITY ACTION AGENCIES ARE A 
PRIME EXAMPLE OF THIS LATTER CATEGORY. UNLIKE THE LARGER ORGANIZATIONS, 



245 



CAAS — AND THE GROUPS LIKE THEM — SIMPLY WILL NOT BE ABLE TO PARTI- 
CIPATE IN THE KIND OF FREE SPEECH ACTIVITIES COVERED BY THE PROPOSED 
A-122 REVISIONS IF THEY CANNOT MIX OR ALLOCATE COSTS IN SOME REASONABLE 
WAY. THEY CANNOT AFFORD TO HAVE TWO OF EVERYTHING: TWO EXECUTIVE 
DIRECTORS, TWO BUILDINGS, TWO PRINTING PRESSES, ETC. — ONE FOR 
FEDERALLY FUNDED ACTIVITY AND ONE FOR COMMUN1 CATION TO FEDERAL, STATE, 
AND LOCAL GOVERNMENT OFFICIALS AND THE PUBLIC REGARDING MATTERS CRITICAL 
TO THEIR PROGRAMS. LARGER ORGANIZATIONS CAN DO THAT, SMALLER ONES — 
PARTICULARLY THOSE SERVING THE POOR — CANNOT. 

ALONG THESE LINES, I MUST EXPRESS CONCERN ABOUT THE MOST RECENT ISSUANCE 
FROM OMB IN WHICH THE ADMINISTRATION INDICATED SEVERAL AREAS IN WHICH IT 
WAS "ACTIVELY SOLICITING SPECIFIC PROPOSALS" FROM AFFECTED PARTIES. 
THESE AREAS WENT PRIMARILY TO THE DEFINITION OF THE TERM "POLITICAL 
ADVOCACY," THEY DID NOT ADDRESS THE COST ALLOCATION ISSUE SO CRITICAL 
TO THE SMALLER NON PROFITS. 

THE ISSUANCE OF THIS PAPER AND OTHER RECENT DEVELOPMENTS SUGGEST THAT 
OMB SOON MAY BE OFFERING A COMPROMISE TO QUELL THE TREMENDOUS CONTROVERSY 
REGARDING A-122. THE ONLY PROBLEM IS: THE APPARENT DIRECTION OF THE 
COMPROMISE WOULD HELP ONLY LARGE ORGANIZATIONS, NOT THE SMALLER POVERTY 
ORGANIZATIONS UPON WHOSE BEHALF I SPEAK. THEY WOULD REMAIN OUT IN 
THE COLD. 

FIFTEEN YEARS AGO THIS MONTH, I WENT THROUGH THE TET OFFENSIVE IN 
VIET NAM. LITTLE DID I REALIZE THAT I WOULD HAVE TO FIGHT AGAIN TO 
PERMIT THE PRIVATE, VOLUNTARY SECTOR IN THE UNITED STATES TO 
COMMUNICATE WITH GOVERNMENT AGENCIES THAT FUND HUMAN SERVICE PROGRAMS 
OR THE NEEDY CITIZENS WHO ARE SERVED. I URGE YOU TO LOOK WITH GREAT 
SKEPTICISM ON THESE NEW RESTRICTIONS AND THANK YOU FOR HOLDING HEARINGS. 



246 

Mr. Horton. Thank you very much, Mr. Jones. 

How will this proposal affect nonprofit organizations' delivery of 
services at the local level? 

Mr. Jones. I think there is a great deal of concern that the regu- 
lations as they are proposed may go directly to the actual services 
themselves and define the services as political activity. 

In some cases the activity that is required by Federal grants and 
contracts or by private funds which are received by organizations 
require that there be advocacy on the part of persons who cannot 
assist themselves such as children who are up for adoption, refu- 
gees who are being placed, blind and disabled, mentally ill persons 
who cannot speak for themselves. 

If these organizations are prohibited from talking to zoning 
boards, to county boards of social services, and to speak with each 
other, those organizations which are federally granted and those 
which are not, I would fear that the regulation would go directly to 
say that the actual provision of service itself becomes a political ac- 
tivity under the definition of the revision. 

Mr. Horton. Very good point. Thank you very much, Mr. Jones, 
and we appreciate your being here with us today. 

Our next witness is Bill West, executive director of the Associ- 
ation for Retarded Citizens of Pennsylvania, which is headquar- 
tered in Harrisburg. I go right by there all the time when I am 
driving from here to Rochester, where my district is. 

Mr. West has worked in the area of developmental rehabilitation 
for over 15 years. He has a master's degree in psychiatric counsel- 
ing from the University of Nebraska. 

Welcome, Mr. West. 

STATEMENT OF WILLIAM A. WEST, EXECUTIVE DIRECTOR, 
ASSOCIATION FOR RETARDED CITIZENS, HARRISBURG, PA. 

Mr. West. Thank you, Mr. Chairman. 

I would like to ask that the written comments be included. 

Mr. Horton. We will include your entire statement in the record 
if you would like to summarize it. 

Mr. West. Yes; after hearing the testimony and questions and all 
during the entire day today I would like to make a few points I had 
not put in the written testimony. 

One is that if these regulations were currently in effect the vast 
majority of the folks attending this meeting today would not be al- 
lowed to testify . 

Another is that if these regulations were currently in effect, non- 
profit organizations would have been unable to have informed our 
congressional leaders as to the impacts of the administration in 
trying to deregulate Public Law 94-142, Education for All Handi- 
capped Children Act, which was attempted this past year. 

We would also like to point out that if these regulations were in 
effect that the role of associations for retarded citizens throughout 
the United States in trying to help mentally retarded children 
become mainstreamed into the public schools, even to assist a 
parent in going through an individualized educational plan process 
would probably not be allowed when that involved advocating for 
them with local school districts. 



247 

We would not be allowed to go to bat for a person who is in a 
large State public institution. 

We would have today probably well over 300,000 individuals in 
large warehousing public institutions for the mentally retarded in- 
stead of the under 150,000 we currently have, which has been pri- 
marily a result of the role of the Association for Retarded Citizens 
since the late 1940's in trying to show our society that there are 
better ways of serving handicapped citizens. 

The group we represent, the 6 million mentally retarded persons 
in the United, States, is a group which by and large cannot repre- 
sent themselves. We have to be an advocacy organization. 

We have been their advocate for some 34 years. And as a result 
of that advocacy role we have not only enabled the handicapped in- 
dividuals to become more incorporated into society, we have also 
saved society untold millions of dollars. 

Mr. Horton. What you are saying is that you would be unable to 
continue in operation under your present structure if this OMB 
proposal were adopted? 

Mr. West. Yes, sir, that is absolutely true. 

Mr. Horton. I guess you are concerned about the new one, too, 
are you not? 

Mr. West. Oh, yes; we have been concerned about the fact that 
even in the field of mental retardation a lot of people don't know 
what the potential or capabilities of the people with mental retar- 
dation are. 

Mr. Horton. You probably couldn't be on a TV program to try to 
raise money for them? 

Mr. West. Probably could not, probably could not. 

Mr. Horton. I have been on those. 

Mr. West. The interesting thing is the cost that would be in- 
volved. In Pennsylvania, at least, the cost of institutionalizing a 
mentally retarded person runs about $50,000 per year per person. 
The Community Services on the other hand in Pennsylvania are 
averaging a little over $4,000 per person. 

What we are trying to say is there are better ways of doing 
things and the best way to learn how to do things is to utilize the 
voice of those advocates we have been trying to represent the 
handicapped kids for the past 30-plus years. 

By imposing these kinds of regulations you prevent Congress 
from hearing the voice of the best advocates available and you pre- 
vent us from being able to represent the rights and interests of 
handicapped people throughout the country. 

We would urge Congress — first of all we urge the Office of Man- 
agement and Budget — to recognize they have made a terrible mis- 
take and throw these out the window. 

I am not even sure they need to go back to the drawing board. I 
think first they ought to consult with some of the organizations 
that are so drastically affected. 

Second, I would urge Congress to roundly reject this terribly de- 
structive proposed regulation. 

I very much appreciate the tone and tenor of what has been 
going on today. Thank you very much, Mr. Chairman. 

Mr. Horton. Thank you very much, Mr. West. Your statement is 
an excellent one and certainly points out what the problems are. 



248 

We appreciate your being here and waiting so long to come before 
the committee. Thank you very much. 
[Mr. West's prepared statement follows:] 



249 



TESTIMONY PRESENTED BY: W. A. WEST, EXECUTIVE DIRECTOR 

ASSOCIATION FOR RETARDED CITIZENS, PENNSYLVANIA 



They were quietly tucked in the hindmost section of the January 24 FEDERAL 
REGISTER innocuously labeled "Cost Principles for Non-profit Organizations." If 
it weren't for the inquisitive nature of veteran reporters and the suspicions of 
non-profit staffers, the most far-reaching damaging regulations of this Administration 
may have been passed over. 

Instead non-profit groups are asking the Office of Management and Budget to 
withdraw these damaging rules. 

The regulations are very broad, but the basis is this - non profit organizations 
receiving full or partial federal funding will be prohibited from participating in 
what is termed "political advocacy." The definition runs rampantly through the gamut 
of advocacy activities, from entering a court case as a "friend of the court" to 
contacting a legislator. 

I question whether the 0MB can limit federally funded groups' access to the 
court system by prohibiting them to enter court cases as an amicus curiae. This seems 
an obvious violation of the U.S. Constitution. Thomas Jefferson never mentioned 
that access to the court system was tied to a funding source. 

The Office of Management and Budget justifies this effort to squelch the voice 
of organizations representing the poor, elderly and the handicapped by claiming it 
is protecting the first amendment rights of the public. In actuality, these rules, 
if enacted would expand the government's control over the activities of private, 
federally funded non-profit organizations, especially small ones. In the end, 
everyone's rights would be violated. 

Two major points emerge from the regulations. First, they would expand 
tremendously the definition of "political activities" from the current concern with 
legislation and the electoral process to any decision made by governments or officials. 



250 



Secondly, they would allow large, wealthy organizations to establish a separate 
office and to maintain separate staff and facilities so that they could continue 
their "political advocacy" while they continue to receive those precious federal 
dollars. 

Thus, the new regulations set a double standard on lobbying. Only non-profit 
organizations with plentiful financial resources to establish a separate office and 
staff would be permitted to engage in political advocacy. Poor non-profits would be 
prohibited from advocacy even with their private resources. 

Under these guidelines federally funded non-profit organizations would be 
banned from talking to their legislator, calling their own funding resources in the 
administrative branch of state and local government, and entering court as a "friend 
of the court." Amazingly enough non-profits would be prohibited from commenting 
on regulations such as these. As the Association for Retarded Citizens, Pennsylvania 
we are constantly lending our expertise to the Pennsylvania Welfare Department in 
need of help in drafting regulations that affect various aspects of retarded citizens' 
lives. These regs would eliminate our expert voice. 

Congress has already established limitations on lobbying by non-profit 
organizations through the Internal Revenue Code and the Crimes Code, as well as in 
specific provisions of many enabling laws. By undertaking major, substantial, far- 
reaching changes through administrative policy, 0MB has enacted substantive legis- 
lation as part of an administrative circular governing cost accounting principles. 
This is a usurpation of the Congressional legislative authority which may go well 
beyond the scope of OHB's authority. 

I hear the wheels of this Administration clicking, saying either take the 
money and be quiet or give it up and go it on your own with private money. In the 
past few years the economy has made the private dollar a source of continual 
competition. Groups that are supposed to be helping the poor and needy find them- 
selves pounding the pavement looking for money instead of performing the job they 

set out to do in the first place. 



251 



The Administration repeatedly asks the private sector to take on the responsi- 
bility of serving those in need at much less cost to the taxpayer, and private non- 
profits can save the government millionsof dollars by matching federal grant monies 
with privately raised funds. But this effort to cut-off funds if a group is involved 
in political advocacy will only foster a further reduction in service and a greater 
dependency on government programs. 

Bureaucrats and legislators need to hear from non-profit organizations, whether 
they receive federal funds or not. To eliminate the voice of groups representing 
retarded citizens, disabled people or the elderly just because they receive federal 
dollars is disgraceful. 

Don't these groups have a right to represent their constituencies? Wealthy 
non-profits will continue to do so; they'll just move their political advocacy efforts 
across the street or into another section of the building at a hefty cost to the 
government and their contributors. 

The public should be ecstatic that groups like the ARC are using their money 
to watch the government; to make sure that the legislative and the administrative 
branches are doing what the public has mandated them to do. This is a fundamental 
principle of our democracy. 

It appears that only the wealthy will be permitted to represent their special 
interests in the halls of our legislatures if these regs are enacted. This will 
create a land of the elite -- forgetting those at the bottom of the social strata 
too poor or powerless to perform "political advocacy" on their own. 

The ARC is 13,000 members strong and has local chapter affiliates in 55 counties 
across Pennsylvania. Many local ARC'S receive federal dollars which will jeopardize 
their ability to work with their local legislators if these regulations are enacted. 
One of our fundamental principles is assuring through the governmental process that 
mentally retarded people are served and served well. We must be able to assure that 
they get their fair share of the federal, state and local dollars spent for service 
provision. We can't do that if 0MB ties our hands. Without the ARC'S advocacy 
efforts the rights of retarded citizens will be forsaken in the political process. 
I hope that Congress sees the inherent danger in these 0MB regulations and 
will stop this move to cut certain groups out of our political process. 



20-644 O— 83 17 



252 

Mr. Horton. The next witness is Mr. A. G. W. Biddle, president 
of the Computer & Communications Industry Association, which he 
cofounded in 1972. He is a graduate of the U.S. Military Academy, 
class of 1952. 

Following service in Korea, he worked in the private sector as an 
operations research analyst, a management consultant, director of 
diversification for an aerospace company, vice president of plan- 
ning for a toy manufacturer, and founder and president of a west 
coast management consultant firm. 

We are glad to see you again, Mr. Biddle. 

STATEMENT OF A. G. W. BIDDLE, PRESIDENT, COMPUTER & 
COMMUNICATIONS INDUSTRY ASSOCIATION 

Mr. Biddle. It is always a pleasure to be back. 

I appreciate the chance to come before you today. As you know 
from past exposure to our association, CCIA is an association of 
chief executives of some 70 companies engaged in the manufacture 
of computer and communications-related hardware and software. 

I find it ironic that last week Assistant Attorney General Baxter 
suggested that our members should not talk to each other without 
tape recorders and now Mr. Stockman tells us that they can't 
belong to a trade association and do business with the Government. 
Something strange seems to be happening over at the other end of 
Pennsylvania Avenue. 

The principal purpose of the association was and is to monitor 
and report on developments in regulatory and legislative areas af- 
fecting our industry, and to provide our members with a means of 
expressing their collective views on those developments. 

We have been active participants in successful efforts to modern- 
ize our Nation's antitrust laws, increase the efficiency and fairness 
of Federal ADP procurement, introduce competition into the field 
of telecommunications, roll back capital gains taxes in order to re- 
store entrepreneuralism to the U.S. economy, and expand the level 
of exports of our industry's goods and services. 

Only the largest of U.S. corporations can afford to maintain a 
full-time Washington presence. For the smaller companies, mem- 
bership in their industry's trade association provides the eyes, ears, 
and voice that they require in order to have a say in the myriad 
regulatory and legislative decisions that affect their companies, 
their shareholders, and their employees. 

As president of the CCIA my job and that of my staff is political 
advocacy for a very large and important sector of American indus- 
try. And contrary to comments of the administration, I am not 
ashamed the least bit about my responsibility to speak out in the 
political arena. 

I have reviewed OMB's proposed revision to rules governing the 
activities of nonprofit corporations such as ours, and I am alarmed. 

One of my member companies has a division that engages in ex- 
tensive advanced development work under various Government 
contracts. Another of the divisions is in the data processing equip- 
ment business, sells to the Government under Federal supply 
schedules and competitive bid procedures, and belongs to our asso- 
ciation. 



253 

If the president of the parent company were to testify before this 
committee about the data processing industry, would the presi- 
dent's salary, expenses and associated overhead be disallowed from 
the other division's Government contract? 

Would his senior vice president of finance's salary and associated 
overhead be disallowed for talking to me for 15 minutes on the 
phone about this testimony? 

If the president of the parent company participated in a meeting 
of the association that his nondefense contract division belonged to, 
would his salary and overhead allocation be disallowed? 

The vast majority of our member companies sell to the Federal 
Government under schedules or through competitive bidding. 

What prevents an auditor from asserting that the contract price 
includes some allocation of our association's dues and should there- 
fore be disallowed in toto? That the president or a vice president of 
the company testified on behalf of the association and his salary 
and associated expenses should be disallowed? 

Are the disallowed salary and associated expenses for the day he 
testified, the week, the year, or the duration of the contract? 

A member company invites a Member of Congress to address the 
company's employees in the company's cafeteria. Is the company 
attempting to influence a Federal election? Is the company guilty 
of affecting the opinions of the general public or any segment 
thereof? Are the salaries of all individuals who had any involve- 
ment in inviting, greeting, or introducing the Congressman disal- 
lowed? Are the costs associated with the company's plant disal- 
lowed because the company cafeteria constitutes more than 5 per- 
cent of the usable space in the plant? 

Perhaps some may view these as extreme examples. My point is 
simply this: OMB Circular A-122 if adopted in any way faintly ap- 
proaching its present form and thrust will stifle the extremely im- 
portant flow of information and ideas between our Nation's policy- 
makers and its industrial leadership. 

I have spent the last 10 years of my working career developing 
an awareness on the part of our member company executives of 
their responsibility to participate in the political process and to 
make their knowledge and expertise freely available to regulators 
and legislators to the benefit of our Nation. 

Slowly and painfully I have caused them to start PAC's or to 
contribute to ours. Circular A-122 will lead corporate counsel and 
corporate financial executives to advise against continuation of 
these activities, or, in the alternative, ending any further sales to 
the Government. 

In conclusion, Circular A-122 is ill conceived, vaguely drafted, 
and an administrative nightmare. To avoid the possibility of disal- 
lowance on significant cost items or the threat of debarment or sus- 
pension, all companies who do business with the Government are 
motivated to withdraw from their trade associations, disband their 
PAC's, cease presenting their views to the FCC, SEC, and, finally, 
to avoid all contact with any other regulatory or legislative person- 
nel at the Federal, State, or local level that did not result from a 
specific written request or invitation. 

I would hope that the members of this committee, from both 
sides of the aisle, will make it known to the administration that 



254 

OMB Circular A-122 should not only be withdrawn from considera- 
tion but that the premises underlying it should also be completely 
reconsidered. 

I think our country is having enough trouble maintaining our 
world leadership in high technology without severing all communi- 
cations between the private sector high technology community and 
our Nation's policymakers. 

Thank you. I would be happy to entertain any questions you 
might have. 

Mr. Brooks. Thank you very much, Jack. It is a pleasure to have 
you here. 

Mr. Biddle. Nice to be on the majority side for a change, sir. 

Mr. Brooks. Yes. That's right. 

Does your organization have purely informational contact with 
Government agencies that might be curtailed by the proposed OMB 
regulations? 

Mr. Biddle. Since our association is 100 percent dues funded it is 
my belief that just promulgation of this circular will cause many 
members to reconsider or their lawyers to counsel against associ- 
ation membership. 

It is not unlike the impact that the prudent man rule in ERISA 
had on institutional investment in small companies in this country. 
They dried up because the lawyers were scared to death to encour- 
age investment in a less than Fortune 500 sized company. So, yes, 
it will have a very stifling effect on our informational role. 

I didn't get a letter inviting me to this hearing. This may be my 
last hearing if this thing is passed. 

Mr. Brooks. I hope not. I hope not. 

Mr. Biddle. We have a lot of fun with OMB at times. 

Mr. Horton. I was thinking as you are talking, it will probably 
do away with the PAC's, too. 

Mr. Biddle. It would. 

Mr. Horton. As a matter of fact, a lot of people would like to do 
away with them. Maybe this is the way to do it. 

Don't answer that question. 

Mr. Brooks. Very good testimony. 

Thank you. 

John Charles Houston of the Fairness Committee Against Tax 
Funded Politics, the only witness other than OMB in favor of this 
proposal, called in and said he was unable to testify on account of 
illness. I hope that is not insignificant. 

[Note: Mr. Houston's statement appears in the appendix.] 

Mr. Brooks. Our next witness is Mr. Robert T. Thompson, chair- 
man of the board of directors of the U.S. Chamber of Commerce. 
Mr. Thompson, the senior partner in the Greenville, S.C., law firm 
of Thompson, Mann, and Hutson, a bosom friend of Senator Strom 
Thurmond 

Mr. Thompson. How did you know that? 

Mr. Brooks. He lives two doors away. 

He was chosen chairman of the chamber's board this past Janu- 
ary to succeed Paul Thayer when he joined the Reagan administra- 
tion. He is a graduate of Emory University and the Emory Law 
School. 



255 

Mr. Thompson is accompanied today by Christine A. Russell, leg- 
islative counsel of the Small Business Center of the U.S. Chamber of 
Commerce, and by J. H. Joseph, vice president of domestic policy, 
U.S. Chamber of Commerce. 

We are delighted to have you here and you can put all of your 
statement in the record as submitted and make any comments you 
so desire. 

STATEMENT OF ROBERT T. THOMPSON, CHAIRMAN, BOARD OF 
DIRECTORS, U.S. CHAMBER OF COMMERCE, ACCOMPANIED BY 
CHRISTINE A. RUSSELL, LEGISLATIVE COUNSEL, SMALL BUSI- 
NESS CENTER, AND J. H. JOSEPH, VICE PRESIDENT, DOMESTIC 
POLICY 

Mr. Thompson. Thank you, Mr. Chairman. 

I would like to submit the entire statement for the record and I 
will summarize the statement if that is agreeable with the Chair. 

Mr. Brooks. Without objection, it is so ordered. 

The gentleman is recognized. 

Mr. Thompson. Mr. Chairman, Mr. Horton, my purpose today is 
to express the chamber's opposition to OMB's proposed changes to 
Circular A-122, "Cost Principles for Non-profit Organizations." 

I asked to come here and testify today to emphasize by virtue of 
the position that I hold as chairman of the U.S. Chamber of Com- 
merce the importance that we attach to this issue and the signifi- 
cance that we see in what is being proposed by this rule. 

On January 24, 1983, the Office of Management and Budget pro- 
posed changes to Circular A-122 that would disallow the cost of po- 
litical advocacy in pricing procurement contracts and certain 
grants. Similar changes were simultaneously proposed for the De- 
fense acquisition regulation, Federal procurement regulation, and 
National Aeronautics and Space Administration procurement regu- 
lation. 

OMB's proposals have set off a flurry of controversy in all sectors 
of the country, and rightly so. These changes, if implemented, 
would drastically alter the day to day routine operations of count- 
less Federal contractors, nonprofit organizations, and trade associ- 
ations. They would impose costly and unnecessary burdens on all 
affected parties and would inhibit the free flow of information be- 
tween these parties and all levels of government. In short, they are 
unnecessary, unworkable, and very probably unconstitutional. 

OMB's stated purpose in proposing these changes is to insure 
that Federal dollars are not used, directly or indirectly, for political 
advocacy. However, OMB offers absolutely no evidence that cur- 
rent law, regulations and policy guidelines do not address these 
concerns adequately. 

The Federal procurement regulation currently disallows costs of 
lobbying. The Internal Revenue Code denies deductions for lobby- 
ing expenses. OMB Circular A-122 adequately prevents misalloca- 
tion of costs under a Government grant or contract, whether or not 
these other costs involve political advocacy. 

Yet OMB's proposals ignore existing safeguards entirely. In fact 
they go far beyond these established principles into entirely new 
universes of political activity. 



256 

Perhaps the most alarming element in OMB's proposals is a 
sweeping definition of political advocacy that covers virtually any 
contact with government except contacts relating specifically to a 
Federal grant or contract. 

This includes activities designed to influence any governmental 
decision, on administrative as well as legislative matters, by com- 
munication with any member or employee of a legislative body or 
with any government official or employee who may participate in 
the decisionmaking process. 

The new regulations would encompass activities at all levels of 
government, Federal, State, and local, and with all branches, legis- 
lative, executive and judicial. 

What is more, dues to trade associations or other organizations 
that acknowledge that they engage in political advocacy activities, 
however minor in scope, would be disallowed by the OMB propos- 
als. 

For most groups it would be difficult, at best, to separate normal 
activities from OMB's version of political advocacy. Accordingly, 
nongovernment funds and organization uses for political advocacy 
would be jeopardized since government contact at any level would 
run the risk of being labeled advocacy by OMB. 

In fact, OMB's definition of political advocacy encompasses the 
most important contacts between the private and public sectors, 
the routine exchange of information essential to keeping govern- 
ment in touch with those it must govern, thus rendering both sides 
less effective. 

Furthermore, these restrictions would not be limited to that por- 
tion of activities related to political advocacy but would extend to 
those activities in their entirety. 

Currently restrictions on lobbying activities by Federal contrac- 
tors generally apply only to that portion of the contractors' activi- 
ties allocable to lobbying. 

Employees, equipment or facilities that are used for contract ac- 
tivities can also be used for lobbying purposes, provided that the 
cost of such lobbying is paid from non-Federal funds. OMB's pro- 
posals would drastically inhibit this practice. 

The proposals require physical separation of personnel and 
equipment used in program activities and advocacy activities, a 
process that would be burdensome and impractical. 

OMB's proposal that businesses and organizations segregate and 
consolidate these activities into a single office is totally unrealistic. 
For small businesses, which is the bulk of the U.S. Chamber of 
Commerce, I might add, it would be impossible; for large compa- 
nies, impractical; for government, counterproductive. The result 
would be a more remote and less informed bureauracy on all 
levels. For small businesses the awesome possibility of debarment 
is also included in this proposal. 

The proposed regulations discriminatorily segregate and penalize 
a particular segment of free speech, political advocacy. They explic- 
itly permit certain types of expression, such as nonpartisan studies 
and some types of litigation, and even permit some forms of politi- 
cal advocacy. 

The proposals discriminate in favor of unions by granting a spe- 
cial exemption for union dues. Required membership in any other 



257 

political advocacy organizations would invoke total disallowance of 
the salaries involved but membership in unions does not invoke 
this disallowance. 

Small businesses that receive Federal research and development 
funds would also be discriminated against under the OMB propos- 
als. Universities, strong competitors for the limited Federal re- 
search funds available, are exempted from the proposals, while 
small businesses would be compelled to comply. 

The regulations are also impermissibly vague. They do not define 
what constitutes attempting to influence an election or a govern- 
mental decision. The regulations do not explain how to recognize a 
Government employee who may participate in the decisionmaking 
process. The regulations do not define the sorts of nonpartisan 
studies of which they approve nor what constitutes technical advice 
or assistance that is exempt from penalty when solicited in writing. 

Further, they do not define the sorts of ministerial or nonmate- 
rial political activities that need not be penalized. 

The proposals would infringe on the guarantees of the first 
amendment by precluding allocation of expenses, which would pe- 
nalize exercise of freedom of expression and petition; discriminat- 
ing, by exempting labor union dues and by restricting one category 
of free speech, activities defined as political advocacy, while allow- 
ing others; and imposing broad, vague, and unjustified require- 
ments on certain sectors of society. 

By denying reimbursement for costs of nonpolitical activities if 
those costs are attributable to employees, equipment or facilities 
also utilized in lobbying activities or political advocacy, as broadly 
defined, the Government proposes to levy an unconstitutional con- 
dition on contractors' rights to receive funds to which they are en- 
titled by law. 

Congress has long adopted programs calling for grants and con- 
tracts and, absent specific prohibitions, grantees and contractors 
have been allowed to engage in vigorous advocacy outside of their 
Government time. The system has worked with very little abuse 
and is constitutionally sound. 

It is not OMB's responsibility to invoke broad and stringent re- 
quirements to solve a problem not acknowledged by Congress or 
the Supreme Court. Certainly it is not within OMB's authority to 
directly contradict these bodies, as would the proposed revision's 
requirements. 

Under the current OMB Circular A- 122 if a grantee or Federal 
contractor accepts Federal dollars and improperly allocates costs 
related to nonproject activities, Federal agencies have ample au- 
thority to withhold reimbursement. 

The circular is based on sound accounting principles which, if fol- 
lowed by the granting agency, insure that no Federal dollars im- 
properly flow to private activities. It would be a stunning intrusion 
into the speech and privacy rights of recipients to press further. 

Finally, if OMB's proposed changes take effect, much more than 
the constitutional rights of the contractors and grantees is at stake. 
A democracy is richer if it can allow and even encourage citizens to 
join together to promote their interests. 

OMB's proposed changes, however, seek to inhibit these activi- 
ties. If they are implemented, all of us will be the poorer. 



258 

Thank you very much for allowing us to make our statement to 
this committee. 

[Mr. Thompson's prepared statement follows:] 



259 



STATEMENT 

before the 

LEGISLATION AND NATIONAL SECURITY SUBCOMMITTEE 

of the 

GOVERNMENT OPERATIONS COMMITTEE 

for the 

CHAMBER OF COMMERCE OF THE UNITED STATES 

by 

Robert T. Thompson 



I am Robert T. Thompson, senior partner, Thompson, Mann and Hutson, and 
Chairman of the Board of the U.S. Chamber of Commerce. I am accompanied by 
Jeffrey H. Joseph, vice president, Domestic Policy, and Christine A. Russell, 
legislative counsel, Center for Small Business. My purpose today is to 
express the Chamber's opposition to OMB's proposed changes to Circular A-122, 
"Cost Principles for Nonprofit Organizations." 

The Chamber of Commerce of the United States is the largest federation 
of business and professional organizations in the world, and is the principal 
spokesman for the American business community. The U.S. Chamber represents 
more than 237,000 members, of which more than 233,000 are business firms, more 
than 2,700 are state and local chambers of commerce and more than 1,200 are 
trade and professional associations. 

More than 90 percent of the Chamber's members are small business firms 
having fewer than 100 employees. Yet, virtually all of the nation's largest 
industrial and business concerns are also active members. We are particularly 
cognizant of the problems of smaller businesses, as well as issues facing the 
business community at large. 

On January 24, 1983, the Office of Management and Budget proposed 
changes to Circular A-122 that would disallow the cost of "political advocacy" 
in pricing procurement contracts and certain grants. Similar changes were 
simultaneously proposed for the Defense Acquisition Regulation, Federal 
Procurement Regulation, and National Aeronautics and Space Administration 
Procurement Regulation. 

OMB's proposals have set off a flurry of controversy in all sectors of 
the country — and rightly so. These changes, if implemented, would 
drastically alter the day-to-day, routine operations of countless federal 
contractors, nonprofit organizations, and trade associations. They would 
Impose costly and unnecessary burdens on all affected parties, and would 
inhibit the free flow of information between these parties and all levels of 
government. In short, they are unnecessary, unworkable and very probably 
unconstitutional. 

A-122 CHANGES ARE NOT NEEDED 

OMB's stated purpose In proposing these changes is "to ensure that 
federal dollars are not used, directly or Indirectly, for political 
advocacy." According to the agency, these changes are needed to ensure that: 

1) Government does not appear to endorse the political views of the 
organizations it funds; 

2) Government does not induce recipients of federal funds to conform 
their behavior to government desires; and 



260 



3) Taxpayers are not required to contribute to the support of an 
ideological cause they may oppose. 

However, 0MB offers absolutely no evidence that current law, 
regulations and policy guidelines do not address these concerns adequately. 

The Federal Procurement Regulation currently disallows costs of 
lobbying. The Internal Revenue Code denies deductions for "lobbying" 
expenses. And 0MB Circular A-122 adequately prevents misallocation of costs 
under a government grant or contract, whether or not these other costs involve 
political advocacy. 

Yet, OMB's proposals ignore existing safeguards entirely. In fact, 
they go far beyond these established principles into entirely new universes of 
political activity. 

POLITICAL ADVOCACY DEFINITION UNREASONABLY BROAD 

Perhaps the most alarming element in OMB's proposals is a sweeping 

definition of political advocacy that covers virtually any contact with 
government except contacts relating specifically to a federal grant or 
contract. This includes activities designed to influence any governmental 
decision, on administrative as well as legislative matters, by communication 
with any member or employee of a legislative body, or with any government 
official or employee who may participate in the decisionmaking process. 

The new regulations would encompass activities at all levels of 
government — federal, state and local — and with all branches — 
legislative, executive and judicial — and public discussions (other than 
membership in a labor union) . 

What's more, dues to trade associations or other organizations that 
acknowledge that they engage in political advocacy activities, however minor 
in scope, would be disallowed by the 0MB proposals. 

The proposed changes have serious, and potentially devastating, 
implications for corporations which sponsor separate segregated funds, that 
is, political action committees (PACs). This runs contrary to the intent of 
the Federal Election Campaign Act of 1971 (FECA), written with the deliberate 
object of creating legitimate avenues of interest group participation in the 
electoral process. 

In the 1974 Amendments to FECA, Congress reinforced its intent by 
specifically permitting government contractors to sponsor PACs. OMB's 
proposals contravene this clearly stated congressional intent by placing 
unwarranted administrative burdens on government contractors with PACs. 

THE PROPOSALS ARE UNWORKABLE 

For most groups, it would be difficult, at best, to separate normal 
activities from OMB's vision of "political advocacy." Accordingly, 
non-government funds an organization uses for political advocacy would be 
jeopardized, since government contact at any level would run the risk of being 
labeled "advocacy" by 0MB. 

In fact, OMB's definition of "political advocacy" encompasses the most 
important contacts between the private and public sectors — the routine 
exchange of information essential to keeping government in touch with those it 
must govern — thus rendering both sides less effective. 



261 



Furthermore, these restrictions would not be limited to that portion of 
activities related to "political advocacy," but would extend to those 
activities in their entirety. Currently, restrictions on lobbying 
by federal contractors generally apply only to that portion of the 
contractors' activities allocable to lobbying. Employees, equipment or 
facilities that are used for contract activities can also be used for lobbying 
purposes, provided that the cost of such lobbying is paid from nonfederal 
funds. OMB's proposals would drastically inhibit this practice. 

For example, if an individual were to write to a local government 
official on behalf of a company under federal contract, the entire cost of his 
or her salary could be disallowed under the proposal, as could the costs of a 
photocopy machine used to reproduce the letter, and the postage machine that 
stamped the letter. Even though the so-called "political" activity took up a 
small percentage of employee and equipment time, the entire costs could be 
disallowed. 

The proposals require physical separation of personnel and equipment 
used in program activities and advocacy activities — a process that would be 
burdensome and impractical. They would force most major defense contractors 
and many nonprofits to move their government relations units into separate 
offices, with separate office equipment and separate clerical staffs. 

For many, this division would prove logistically and economically 
infeasible. Unable to comply with the requirement , companies and 
organizations would be faced with the choice of rejecting federal funds and 
contracts or abstaining from any of the broad range of activities covered by 
OMB's definition of political advocacy. The effect would be to chill the 
perfectly legal dialogues and communications that are essential to sound 
governmental processes. 

The business community and all levels of government — federal, state 
and local — currently communicate on a continuing basis about a vast array of 
concerns. Government is better for these interchanges. In fact, in a 
democratic society, they are essential. 

OMB's proposal that businesses and organizations segregate and 
consolidate these activities into a single office is unrealistic. For small 
businesses, it would be impossible; for large companies, impractical; for 
government, counterproductive. The result would be a more remote and less 
informed bureaucracy on all levels. 

OMB'S PROPOSALS ARE DISCRIMINATORY AND VAGUE 

The proposed regulations discriminatorily segregate and penalize a 
particular segment of free speech — "political advocacy." They explicitly 
permit certain types of expression, such as "nonpartisan" studies and some 
types of litigation, and even permit some forms of "political advocacy." 



262 



The proposals discriminate in favor of unions by granting a special 
exemption for union dues. Required membership in any other "political 
advocacy" organizations would invoke total disallowance of the salaries 
involved, but membership in unions does not invoke this disallowance. 
Further, the regulations would permit provision of "advice or assistance" to a 
governmental body in some circumstances, but not in others. It sometimes 
would be permissible to attempt to influence public opinion as long as the 
person doing so is not ultimately "attempting to influence government 
decisions." 

Small businesses that receive federal research and development funds 
would also be discriminated against under the OMB proposals. Universities, 
strong competitors fcr the limited federal research funds available, are 
exempted from the proposals, while small businesses would be compelled to 
comply. 

The regulations are also impermissibly vague. They do not define what 
constitutes "attempting to influence" an election or a governmental decision. 
They prohibit any attempt to influence the government by affecting public 
opinion but do not inform us of the circumstances in which an "attempt to 
affect" public opinion will be regarded as "attempting to influence" the 
government. The regulations do not explain how to recognize a government 
employee who "may participate in the decisionmaking process" or when 
communication with such an entity will constitute "attempting to influence." 
The regulations do not define the sorts of "nonpartisan" studies of which they 
approve, nor what constitutes "technical" advise or assistance that is exempt 
from penalty when solicited in writing. Further, they do not define the sorts 
of "ministerial" or "non-material" political activities that need not be 
penalized. 

THE PROPOSED REGULATIONS ARE UNCONSTITUTIONAL 

The proposals, which would have a chilling effect on freedom of 
expression and petition, would infringe on the guarantees of the First 
Amendment by: 

o Precluding allocation of expenses, which would penalize exercise of 
freedom of expression and petition; 

o Discriminating, by exempting labor union dues and by 
restricting one category of free speech — activities 
defined as political advocacy — while allowing others; and 

o Imposing broad, vague and unjustified requirements on certain 
sectors of society. 

By denying reimbursement for costs of nonpolitical activities if those 
costs are attributable to employees, equipment or facilities also utilized in 
lobbying activities or political advocacy, as broadly defined, the government 
proposes to levy an unconstitutional condition on contractors' rights to 
receive funds to which they are entitled by law. 

The Supreme Court has consistently held that the government may not 
deny a person a valuable government benefit "on a basis that infringes his 
constitutionally protected interests — especially his interest in freedom of 
speech." ( Branti v. Finkel , 445 U.S. 507, 515 (1980) quoting Perry v. 
Sindermann, 408 U.S. 593, 597 (1972)). 



263 



Certainly, a broad restriction that denies contractor reimbursement for 
the costs of nonpolitical activities unless the contractor segregates 
facilities, equipment and personnel devoted to political activities not only 
serves no legitimate governmental interest or purpose, but raises fundamental 
constitutional issues as well. 

Constitutional experts have extensively documented the questions raised 
by OMB 's proposals. We would be happy to provide the Committee with this 
documentation if it so desires. 

CONCLUSION 

In a free society, government should rely primarily on its citizens to 
declare when free speech i6 threatened and needs remedial help. 

Congress has long adopted programs calling for grants and contracts, 
and, absent specific prohibitions, grantees and contractors have been allowed 
to engage in vigorous advocacy outside of their government time. The system 
has worked with very little abuse and is constitutionally sound. It is not 
OMB's responsibility to invoke broad and stringent requirements to solve a 
problem not acknowledged by Congress or the Supreme Court. Certainly, it is 
not within OMB's authority to directly contradict these bodies, as would the 
proposed revisions' requirements. 

Under the current OMB Circular A-122, if a grantee or federal 
contractor accepts federal dollars and improperly allocates costs related to 
non-project activities, federal agencies have ample authority to withhold 
reimbursement. The circular is based on sound accounting principles which, if 
followed by the granting agency, ensure that no federal dollars improperly 
flow to private activities. It would be a stunning intrusion into the speech 
and privacy rights of recipients to press further. 

Finally, if OMB's proposed changes take effect, much more than the 
constitutional rights of the contractors and grantees is at stake. Lost 
opportunities will be the greatest casualty. A democracy Is richer if it can 
allow and even encourage citizens to join together to promote their common 
interests. As long as the legal limits on lobbying are observed, 
organizations ought to be able to use their privately raised dollars to engage 
in other kinds of advocacy for themselves and their clients. If that advocacy 
brings criticism of a local school board or the United States Senate, no one 
is the poorer. In fact, through its exercise of freedom of expression, the 
entire country is enriched. 

OMB's proposed changes, however, seek to inhibit these activities. If 
they are implemented, all of us will be the poorer. 



264 

Mr. Brooks. Thank you very much for a fine statement. 

I have one question. The OMB circular would prohibit contrac- 
tors or grantees from contributing money, including dues, to any 
organization that had political advocacy as a substantial organiza- 
tional purpose, or that spent $100,000 or more on political advoca- 
cy. Would this provision disqualify some of your members from be- 
longing to your association? 

Mr. Thompson. I think possibly it would. I am not prepared to 
say that it would totally disqualify them from belonging. I think it 
would certainly diminish their ability to participate in our organi- 
zation. In some instances it possibly would disqualify companies. 

To be perfectly candid with you, I think I would have to say 
surely there would be ways you could segregate activities, funds, 
and dues so you could continue to operate. But it would definitely 
hamper an organization such as ours and conceivably, let's say 
through the cautious advice of legal counsel, there would be many, 
many Government contractors who would see fit not to belong to 
trade associations such as the U.S. Chamber of Commerce. 

Mr. Brooks. There are more than nine ways, you think, to skin a 
cat. 

Mr. Thompson. Yes, sir. 

Mr. Brooks. More than nine. 

Mr. Thompson. I would say this would appear to be No. 10. 

Mr. Brooks. No. 10, a new way. 

Mr. Thompson. Yes, sir. 

Mr. Brooks. I believe you can do it. I believe you can do it. 

Mr. Thompson. I am not willing to say we would go out of busi- 
ness. I think some organizations might, but we would find a way to 
survive, I would hope. 

Mr. Brooks. You have flexibility. 

Mr. Thompson. It would be for 

Mr. Brooks. It would be more difficult for small organizations. 

Mr. Thompson. I think small organizations would be put in jeop- 
ardy of their existence. 

Mr. Brooks. Mr. Horton? 

Mr. Horton. Thank you very much, Mr. Chairman. 

First of all I want to thank you for coming, Mr. Thompson. I re- 
alize that as the chairman of the board of the chamber of com- 
merce, your time is very valuable, and it is difficult for you to allo- 
cate that type of time. 

This hearing has gone on for a long time. We do appreciate your 
patience. 

I also want to tell you that we are happy that you did choose to 
be here personally, accompanied by two of your people from the 
chamber, because it does, I think, add importance and credibility to 
the position of the chamber. I would assume from what you have 
said you feel this OMB proposal is a very major intrusion into the 
affairs of the chamber of commerce and the people that you repre- 
sent. 

Mr. Thompson. Yes, sir. I would like to point out that the cham- 
ber, U.S. Chamber of Commerce, is a federation of trade associ- 
ations and local chambers of commerce, and we represent them 
here today. 



265 

We would see it not only as an intrusion into our affairs directly 
but into the affairs of our many thousands of constituent members. 
That is the reason I am here, because we wanted to stress to you 
how important we consider this whole thing. 

Mr. Horton. One of my constituents, a close personal friend of 
mine, some years ago occupied the position that you occupy now. 
Mr. Shumway. You may know him. 

Mr. Thompson. Very well. He is a very fine and distinguished 
gentleman. 

Mr. Chairman and Mr. Horton, we have our annual dinner on 
May 1 this year and I want to personally extend an invitation to 
both of you to attend that dinner. 

Mr. Horton. Make a note of that, because I am going to be 
there. 

Mr. Brooks. Put that in the record. All right. 

Mr. Thompson. We would be delighted to have both of you. 

Mr. Horton. I attended the one last year. They are always fine 
events. 

I gather from what you have said you feel this is a very danger- 
ous endeavor by the Office of Management and Budget. 

I don't know whether you were here this morning when Mr. 
Wright of the Office of Management and Budget was talking about 
going back to the drawing boards and in 2 weeks coming out with 
something else. I was very impressed with your testimony because 
you indicated that you don't feel that anything further is needed. 
In other words, your testimony seems to indicate that the chamber 
feels that there are adequate safeguards now against the use of 
Government funds for lobbying. 

Mr. Thompson. Yes. Absolutely. 

Mr. Horton. I assume that if OMB does come out with other pro- 
posals, the chamber will look them over very carefully, and I would 
hope that we could have the benefit of your views with regard to 
what they do propose. 

I am a little bit concerned because I think that they have not 
talked with the people that they need to talk with, and they are 
scheduled to come out with something new in 2 weeks. I don't 
think 2 weeks is enough time to walk through the complex consti- 
tutional and other legal issues that they are going to have to go 
through in order to come out with some type of regulation. 

Mr. Thompson. You can be certain we will scrutinize anything 
that does come out on this subject at any time. I will be surprised 
if they come back with anything, period. But I will certainly be 
surprised more if they come back in 2 weeks. We will certainly be 
here if there is the need for further hearings. 

Mr. Horton. Thank you very much. We appreciate your testimo- 
ny • 

Mr. Thompson. Thank you all. 

Mr. Brooks. Thank you all. 

Our next witness this afternoon is Mr. John M. Toups, president 
and chief executive officer of Planning Research Corp. He is ap- 
pearing today on behalf of the Professional Services Council. 

Mr. Toups was named president of PRC in November of 1977 and 
chief executive officer the following January. He was the founder 
of the Toups Corp., a civil engineering firm that was acquired by 



266 

PRC in 1970. He holds a degree in civil engineering from the Uni- 
versity of California at Berkeley and is a member of a number of 
professional engineering associations. Mr. Toups is accompanied by 
Bert Concklin, PRC's director of government relations. 

Gentlemen, we are delighted to have you here. We would accept 
your statement for the record and you may make whatever com- 
ment you might want. 

STATEMENT OF JOHN M. TOUPS, PRESIDENT AND CHIEF EXECU- 
TIVE OFFICER, PLANNING RESEARCH CORP., ON BEHALF OF 
PROFESSIONAL SERVICES COUNCIL, ACCOMPANIED BY BERT 
CONCKLIN, DIRECTOR, GOVERNMENT RELATIONS, PLANNING 
RESEARCH CORP. 

Mr. Toups. First we want to thank the committee for the oppor- 
tunity to present the views of the Professional Services Council 
here today. It is a trade association of firms that provide technical 
and professional services to both Government and the private 
sector. The primary purpose of the council is to promote the policy 
of Government reliance on the private sector for needed goods and 
services. In other words, the council seeks avoidance of Govern- 
ment competition with the private sector where the private sector 
is capable of providing what the Government needs. 

I came here as a concerned member of this council to present its 
strong opposition to this OMB proposal. After hearing all of the 
testimony today I am not just concerned about it; I, too, am out- 
raged. I really am. 

Only now do I realize the full negative impact on the country 
and on my company that this proposal could have, or could have 
caused. 

I realize that the proposal will not get implemented largely be- 
cause of this committee's good work. 

Mr. Brooks. You shouldn't be so confident, Mr. Toups, that they 
are going to go back to the drafting board. 

Mr. Toups. I heard all of that. We will be here. 

Mr. Brooks. We will all be back again. 

Mr. Toups. Absolutely. 

Mr. Brooks. I don't think they want to deal with us anymore, 
but they may have to. 

Mr. Toups. I am outraged at the lack of thought that the OMB 
gave to this proposal in the first place or, even worse, at what 
might be OMB's hidden agenda. 

Let me personalize my concern by talking about the impact of 
the proposal, if adopted, on my company. 

PRC is a professional services company with over 6,000 engi- 
neers, scientists, and other professional and technical people. We 
do about 330 million dollars' worth of business a year. About half 
of that is for the government, largely the Federal Government al- 
though we do some State and local government work, too. The 
other half of our business is with the private sector. 

To properly serve any client one must understand its needs and 
its procedures and rules. In order to properly serve the Federal 
Government we must have a lot of interaction at all levels of the 
Government and with all of the branches. 



267 

We must deal with a wide variety of government regulations. We 
must routinely engage Federal, local, and State governments in 
both seeking and offering ideas on such matters as Federal pro- 
curement, program technical standards, taxation, trade policy, pen- 
sion policy, SEC functions, health and safety, and a myriad of 
others. 

We must also engage in the conventional buyer-seller relation- 
ship. Private-sector sellers do not communicate with government 
buyers only by choice. The multitude of government regulations 
that impact our government business make it mandatory that we 
understand, comply with and react to them effectively and quickly. 
This requires communications. 

To facilitate this needed communication with the government we 
have a modest full-time government relations activity. It costs 
about $300,000 a year, or about one-tenth of 1 percent of our total 
costs or total revenues. 

And not all of this $300,000 is for lobbying; a lot of it is other 
communications and liaison which are allowable costs under the 
present rules. 

The proposed rules would probably make all of the $300,000 un- 
allowable, only about $150,000 of that would be saved by the gov- 
ernment because we only do about half of our work for the govern- 
ment. The other half of the $300,000 in government relations ex- 
penditures is charged to the private sector work we do. 

So we are only talking about — in our case, anyway — a very 
modest sum, I believe. Compare this $150,000 with the impact that 
this regulation could have had on us. 

For example, I serve at the request of the Secretary of the Treas- 
ury as the volunteer chairman of the U.S. payroll savings plan in 
the Washington metropolitan area. In that role last fall I contacted 
some Members of Congress to seek their support for the adoption of 
a variable interest rate for U.S. savings bonds, to make them more 
attractive savings instruments. 

Under the proposed rules, as I understand them, this activity 
would have contaminated the rest of my cost — the rest of my 
salary — and this would have been disallowed. 

I can assure you that this is substantially more than $150,000 to 
which I first referred. 

Let me give you a second example. Suppose that 100 of our 6,200 
employees during the course of the year had some contact with 
State, local, or Federal Government on a political matter — some- 
thing that would be interpreted under this rule as a political 
matter. If those people worked on government contracts their sala- 
ries would be disallowed. 

The impact on us of those salaries being lost would represent 
somewhere between 25 and 50 percent of our total annual profits. 

Let me give you a third example, which I think is outrageous. I 
don't think it was meant to be this way but a literal interpretation 
of the proposal would get you to this conclusion. 

Our staff works in both the private and the public sector. In the 
private sector we are quite often hired as experts, advocates even, 
for a certain point of view. For example, we do a lot of work for the 
Federal Department of Transportation. Some of those engineers, on 
occasion, work for a private sector client like, say, a homeowners' 



20-644 O— 83 18 



268 

association in Fairfax County. An engineer may go down to the 
board of supervisors and represent the association on a traffic 
matter that is of concern to its members, to try to influence the 
decision of the board of supervisors. 

As I understand these regulations, that traffic engineer's time 
spent working on DOT projects would be disallowed. 

Now, if I am correct about the proposed regulations and if that 
occurred, it would bankrupt our company, which means we 
wouldn't do that. As a practical matter, in the long run it would 
mean we would have to separate our company into two parts, one 
part to work for the Federal Government and the other part to 
work in the private sector. 

We could not continue to serve both the public and private sec- 
tors. That would be a very negative impact on this country. 

There is an awful lot of technology transfer, a lot of other man- 
agement concepts transferred back and forth. And to tell a private 
company that it cannot work for the Federal Government and still 
work in the private sector, which is what this really says — it would 
have that practical impact — I think is outrageous. 

I believe that expresses my views, Mr. Chairman. I would con- 
clude by saying that I don't think this proposed rule is needed, it is 
useless and it ought to just be abandoned. I respectfully ask that 
this committee use its infuence to get the administration to drop 
the proposed rule. 

Thank you. 

[Mr. Toups' prepared statement follows:] 



269 



Statement of John M. Toups 
Before the 
House Government Operations Committee 

INTRODUCTION 

Good afternoon, Mr. Chairman and Members of the Committee: 

I want to thank you for the opportunity to present the views of the 

Professional Services Council regarding the proposed new rules on the 

cost allowability of lobbying activities. I am here today representing 

the Professional Services Council. I am also the Board Chairman and 

President of Planning Research Corporation (PRC). 

First, a word about the Professional Services Council. We are a trade 
association with membership deriving primarily from firms which provide 
technical and professional services to the public and private sector. 
The primary focus of the Professional Services Council is the promotion 
of the policy of government reliance on the private sector for needed goods 
and services — that is, avoidance of government competition with the private 
sector. 

The PSC membership includes small businesses with sales under $10M as well as 
large, diversified professional services companies with sales levels in excess 
of $100M. As such, the PSC represents neither a small business nor a big 
business orientation but a blend of the interests of each as they pertain to 
the pursuit of the policy goal of government reliance on the private sector for 
commercial goods and services. 

The firm which I head, PRC, has been in the professional and technical services 
business for 29 years, serving both the public and private sectors — currently 
business derives approximately 60 per cent government and 40 per cent private 
sector sources. In our history and through the moment, we provide an extremely 
broad range of technical and managerial services with hundreds 
of individual projects in existence at any given time. We have supported and 
served virtually all major and most minor agencies of government in functions 
ranging from design support of the Space Shuttle, to the design and construction 
management of U.S. Navy port facilities. 



270 



ISSUES 

We are here today to convey our strongest opposition to a truly remarkable and 

unfortunate instance of a regulatory response which is out of all proportion 

to the apparent problem. The rules which the 0MB and the DOD have proposed relative 

to "political advocacy" (a new euphemism for lobbying we believe?) are nothing 

less than stunning in their damage potential and arbitrary characteristics. What 

is at stake, ladies and gentlemen, is the survival of open and constructive 

communication between the public and the private sector--the type of communication 

which has often been instrumental in helping understand and solve our major social, 

economic and national security problems. 

The architects of the proposed policy no doubt are well intended in their purpose. 
We believe they are seriously misdirected in two important respects: 

(1) Political Advocacy . A definition of political advocacy is proposed 
which goes far beyond any reasonable definition of what has been 
traditionally defined as lobbying—by the IRS, 

DOD, GSA and others. 

(2) Implementing Rules . The specific terms of how the new rules 
would be implemented are, charitably, extremely punitive in 
their design and effect. 

THE POLITICAL ADVOCACY DEFINITION PROBLEM 

The proposed rules are ostensibly an effort to impose additional regulatory 
controls on the reimbursement principles for lobbying expenses. We cannot 
discern any need for additional controls applicable to contractors in light of 
regulatory actions recently taken. I have in mind the most recent Defense 
Acquisition Regulation (DAR 76-39, Para. 15-205.51) issued in October 1982 by 
Secretary Weinberger, which imposes strong and specific limitations on lobbying 
cost reimbursement. Similarly, the current GSA regulation (FPR, Amendment 226) 
constrains cost reimbursement for lobbying. 

Basically these instruments define lobbying as efforts to influence the content 
and direction of legislative action--typically through efforts to gain approval 
of weapon systems or social programs and influence budget levels. It is my strong 
impression that most companies fully comply with these regulations and anticipate 
that they will experience a certain degree of unallowable cost as the consequence 
of lobbying activities. 



271 



In addition to the standing regulations, there is a very real enforcement 
mechanism which most of us are well acquainted with. I refer to the Defense 
Contract Audit Agency personnel who aggressively audit our financial activities 
related to government contracts. I can assure you they are diligent in examining 
the allowability of our costs as they relate to lobbying activities. 

The proposed rule changes apparently are motivated by a perception that the 
lobbying regulations are not adequate. In any case, the proposed rule makes an 
astonishing leap from the accepted definition of lobbying to something newly 
defined as "political advocacy." The proposed definition of political advocacy 
includes most routine forms of communication by contractor and non-profit 
organizations intended to have an impact on and add value to the quality of govern- 
ment policy making, decisions and on-going operations. Quoting from the proposed 
DAR, it defines as unallowable political advocacy 

"attempting to influence governmental decisions through 
communication with any member of employee of a legislative 
body or with any government official or employee who may 
participate in the decision making process." 

The range of prohibited interactions would include such fundamental transactions 
as petitioning the government for relief from a regulation (e.g., OSHA standards, 
pension regulations, food inspection procedures), recommending substantive 
improvements in program technical standards (flight safety, drug abuse, con- 
struction, financial disclosure), advocating changes before local governments in 
such areas as zoning, education, taxation and law enforcement. 

A typical business sytem internal to a profit making company such as my own 
is, for better and for worse, heavily regulated and must routinely engage the 
government in a free flow of information and ideas across the regulatory inter- 
faces in such areas as federal procurement, taxation, trade policy, pension 
policy, SEC functions, health and safety and many others. 

The all encompassing breadth of the proposed definition of political advocacy 
would have a desolating effect on buyer-seller communication. It insults the 
tradition of mutual trust and problem-solving which has characterized the major 
and important joint public-private sector efforts of this country in national 
defense, in economic development, in space, in education, in health and many other 
areas of importance to our social and economic well-being as a nation. 



272 



IMPLEMENTING RULES ("Contamination Principle") 

The fundamental flaws in the definition of what constitutes political advocacy 
are sufficient grounds in themselves for discontinuing the OMB/DOD rule making. 
To make matters much worse, the implementing rules are breathtaking in their 
arbitrary and punitive characteristics. The centerpiece of the implementing 
rules is the "contimination" principle which is, to say the least, innovative. 
Simply stated, any utilization of people, equipment or facilities for political 
advocacy contaminates the resource used. 

This would mean that if I, in my corporate capacity, approached an agency executive 
or member of Congress to discuss a potential improvement, in perhaps, investment 
tax credits or government programs to stimualte technology, I would become con- 
taminated; that is, ttie balance of my time which would be devoted to ongoing 
corporate internal management could not be paid for (as it is today in part) by 
funds flowing through government contracts. 

The examples of this contamination notion are as numerous as they are ludicrous. 
In the equipment and facilities area, the use of a piece of reproduction equipment 
to produce one sheet of paper related to political advocacy would contaminate 
that equipment for reimbursement in connection with legitimate contract work. 
Under the proposed rules, the fact that I have sought to have an impact on your 
thinking on this issue would throw me into a contaminated category. Even the type- 
writer used to produce the paper from which I am reading could have no part of its 
costs allocated to government contracts for an entire year. 

I can only conclude that the auditors of the proposal attempted an utterly 
tortured design to totally partition political advocacy activities from the 
policy, managerial, administrative, and ongoing operations of the corporation 
or nonprofit. This is an artifical separation in the extreme which would be 
virtually impossible to administer and ultimately very expensive to the govern- 
ment and society. 

IMPLICATION FOR INDIVIDUAL ORGANIZATIONS 

At this point I would like to give you some sense of the impact on individual 

corporations of the proposed rules. I cannot speak about the specific 

impact on the nonprofits but I believe they would be similar, except probably 

more severe because of the smaller size and financial limitations of those 

organizations. 



273 



Before proceeding to talk about direct financial impacts, I think it is important 
to make the point that the full and extensive range of communications between 
private sector sellers and government buyers are not elective in nature. They 
are a business-survival imperative arising from the need to understand, comply 
with, and react effectively and efficiently in the face of the multitude of govern- 
ment regulations which impact our business system. The dynamic, complex, and 
frequently inconsistent nature of federal regulatory systems does not allow us 
the luxury of a benign posture towards how the government conceptualizes and 
implements federal regulation. The costs of staying abreast of and anticipating 
and dealing effectively with regulation are in fact an internal cost of doing 
in our highly competitive system. That cost will and must be incurred and 
will ultimately be reflected in the prices of goods and services. Therefore, 
in the largest economic sense, we are not talking about saving money but rather 
what constitutes a reasonable approach to defining and assuring proper cost 
allocation related to lobbying. 

With regard to specific financial impacts, the situation obviously will vary 
significantly from company to company. In the case of Planning Research 
Corporation, we have a relatively modest ongoing government relations activity, 
as do most of our competitors. In fact, the expense for this function constitutes 
less than l/10th of 1 per cent of our annual sales. This simple arithmetic 
masks the deeper reality of how these proposed rules would impact operations 
like ours. If I very conservatively assume that in a given operating year 100 of 
our 6300 employees engaged (even for one hour) in some form of interaction with 
the government (which would be included in the proposed definition of political 
advocacy) a serious financial problem results. If these 100 individuals who 
normally work on government contracts were "contaminated," they could not be 
reimbursed for the work they perform in fulfillment of such contracts. This would 
occur very simply by an inability to absorb the direct costs, overhead and general 
and administrative expenses associated with these people, which in the case of 100 
people, might amount to $6M. This $6M loss, in turn, would represent a bottom 
line erosion of our annual profit to a degree which in the view of our stockholders 
would make us a totally unsatisfactory company. 

The obvious question is, given the hypothetical financial damage just described, 
why not simply stop interacting with the government. As I have indicated, that 
is simply not a practical option in a highly regulated economic system. As a 
footnote, I believe that the relative impact on small businesses would be pro- 
portionately worse, since they, like us, have an irreducible fixed cost of doing 
business with the government. 



274 



SUMMARY 

Mr. Chairman, and members of the Committee, the Professional Services Council 
sincerely believes that the proposed rules are not worthy of continued develop- 
ment and that the rule making proceedings should be cancelled. They are destructive, 
arbitrary, and ultimately punitive. Their philosophic thrust and content is mis- 
directed. I am reminded of current Secretary of State George Schultz 1 observation 
in a collection of essays related to business and oublic policy (edited by 
John T. Dunlop, Harvard University Press, 1980). Secretary Schultz observes that 
there is a central tension in our system between economic efficiency and political 
equity. He goes on (paraphrasing) to say that business is driven primarily by 
economic efficiency considerations and that government policy and regulatory 
action is driven by perceptions of political equity. He then underscores the 
importance and difficulty of balancing these often competing positions. 

The issue we are discussing today is an unfortunate instance of chronic imbalance 
between on the one hand the business and nonprofit communities legitimate rights 
of access and communication, and on the other hand the government's obligation 
to regulate lobbying activities. I suggest to you that the proposal at hand 
would totally stack the deck in favor of the government. The people, who 
the government represents after all, would be the real losers. 

Beyond the lack of merit of the proposal, I sincerely believe it is a regulatory 
initiative which would be extremely expensive, virtually impossible to administer, 
andwould invite non-compliance because of its complex and arbitrary nature. Ex- 
Secretary of Labor John Dunlop addressed this latter point in an article (The 
Limits of Legal Compulsion, 27 Labor Law Journal 72): 

"It should be a first principle (of regulatory design) 
that no set of men are smart enough to write words about 
which others cannot find holes when the stakes are high." 
As I have indicated earlier in my testimony, the stakes are high in this instance 
because of the necessity to interact with government across multiple regulatory 
interaces. 

The proposed rules do not advance the goals of responsive government, economy, 
and the best use of public and private sector resources to solve national problems. 
They are characterized by a closed approach to governing, and an utterly non- 
convincing body of evidence that a real problem exists. 

I urge you to use your influence to prevail upon the Administration to cancel this 
unfortunate rule making proceeding. 

Thank you for the privilege of participating as a witness before your Committee. 



275 

Mr. Brooks. Thank you very much for a splendid statement. I 
enjoyed reading your prepared statement and I enjoyed the one 
that you just made. I think they both complement each other and 
are helpful. 

Do you foresee a danger that this OMB proposal could give gov- 
ernmental agencies the power to pick and choose the views they 
hear on pending governmental decisions by soliciting opinions only 
from friendly organizations? 

Mr. Toups. Absolutely. In fact, the example I gave on the savings 
bond thing; frankly, I was asked to do that by a member of the 
Treasury Department. Obviously the Treasury Department wanted 
that bill passed. I did, too. I think it was a good bill. But it clearly 
could be worked in that manner, that you would only be asked to 
participate in things that they wanted you to, no doubt about it. 

Mr. Brooks. Mr. Horton. 

Mr. Horton. Thank you, Mr. Chairman. 

Mr. Toups, I was very impressed with your testimony and the 
sincerity of it. I sense that you came here excited to begin with, 
and the longer you sat here and the more you listened, the more 
excited you got. 

Mr. Toups. I didn't come here excited. People that know me 
know that I don't normally get excited. I did not. I came here con- 
cerned. My staff had been telling me about this rule and I just 
couldn't believe the intent of it. I came here thinking there would 
be clarification. There wasn't. 

I sat through the testimony this morning and I couldn't believe 
what I heard. 

Mr. Horton. That is what I said. My first reaction, when I read 
about the proposal up in Wayne County one night, after someone 
told me he couldn't talk with me any more because I am a Con- 
gressman, was the same as yours. I read the proposal that night 
and I was shocked. 

I am glad we have had this hearing. I think your testimony is 
very helpful. I am concerned and hope that the message can get 
carried back to the Office of Management and Budget that this is 
not the way to solve the problem that they have mentioned. 

I would assume from what you have said and what other people 
have said here that Federal funds dispensed through grants and 
contracts are generally not being used for lobbying purposes or 
anything unlawful. Are you saying that there may be abuses, but 
those abuses can be corrected other ways? 

Mr. Toups. Yes. 

Mr. Horton. Kind of like throwing the baby out with the bath 
water. 

Mr. Toups. Yes. The GAO statement, I think, was very sound. 
We have a good accounting staff. We have internal auditors, out- 
side auditors, and resident full-time Federal Government auditors 
in our building. We have an audit committee composed of outsid- 
ers. We have a code of business practices. We are very explicit in 
following the rules and regulations of this Government. 

Mr. Horton. The narrow rules and regulations. 

Mr. Toups. Absolutely, absolutely. 



276 

Mr. Horton. And they are pretty stringent to begin with. Do you 
think the taxpayer is getting his dollar's worth under the present 
system without having to have that regulation? 

Mr. Toups. Yes. Absolutely. No question. 

Mr. Brooks. You said you were concerned when you came in but 
not excited. But your statement said that these rules should be can- 
celed, "They are destructive, arbitrary and ultimately punitive. 
Their philosophical thrust and content is misdirected." 

You know, when he gets mad he really gets after them, doesn't 
he? 

Thank you very much for presenting your views. 

Our next witness is Peter F. McCloskey. Mr. McCloskey is presi- 
dent of the Electronic Industries Association, which represents the 
full spectrum of U.S. manufacturers in the electronics industry. 
Prior to joining EIA he was president of the Computer and Busi- 
ness Equipment Manufacturers Association and served as president 
and chairman of the board of a manufacturing company. 

Mr. McCloskey received a B.A. degree from Holy Cross College 
and a law degree from Fordham University School of Law. 

Mr. McCloskey is currently serving on the Peace Corps Advisory 
Council to which he was appointed by President Reagan. 

STATEMENT OF PETER F. McCLOSKEY, PRESIDENT, ELECTRONIC 
INDUSTRIES ASSOCIATION, ACCOMPANIED BY ROBERT C. 
JOHNSON, CHAIRMAN, MULTIASSOCIATION TASK GROUP ON 
CIRCULAR A-122 

Mr. McCloskey. Thank you, Mr. Chairman. Accompanying me is 
Bob Johnson, the chairman and EIA representative to a multiasso- 
ciation task group which is developing a response to OMB Circular 
A-122. 

We are particularly pleased to offer our testimony. We have 
heard a lot of the testimony that has gone on earlier today. I would 
like to contribute to that testimony, and in particular, would com- 
mend the remarks just delivered by Mr. Toups. 

In addition, Mr. Chairman, the multiassociation position state- 
ment which I referred to earlier is in preparation and will be fur- 
nished to this committee by the end of the week for further infor- 
mation. 

I would like to summarize briefly our position. It is that the 
OMB proposal places an unjust and unreasonable burden on Gov- 
ernment contractors and it must be withdrawn. 

The policy and regulatory changes contravene existing adminis- 
tration policy and overreach and usurp congressional prerogatives 
and intent with regard to restrictions on political advocacy. 

In addition, the vast expansion of the definition of political advo- 
cacy, coupled with the imposition of a contamination principle of 
disallowance of legitimate costs of doing business, will have the 
effect of restricting the flow of information which is vital to the 
decisionmaking processes of congressional and executive branch of- 
ficials alike. 

This contamination principle or test of political involvement is 
impractical in today's closely regulated business world. By attempt- 
ing to impose a physical wall of separation between the activity of 



277 

political advocacy and the activity of performing a contract, they 
would inequitably benefit the Government and penalize contractors 
at the same time. This would occur because reimbursement would 
be denied for 100 percent of the work of an employee, 99 percent of 
whose time had been productively spent in support of a contract 
and 1 percent in political advocacy activities. 

I would like to also say a few words about the provisions of the 
circular which impact associations. Trade associations provide a 
number of valuable services to the Government and the public, in- 
cluding the development of technical standards, performance of 
market studies and the holding of educational symposia. 

The prohibition disallowing membership in associations engaged 
in any degree of political advocacy as a reimbursable cost would 
limit the ability of these groups to conduct such programs through 
the curtailment of industry participation. 

In addition, it must be understood that if and when an associ- 
ation does engage in political advocacy activities it is done on a 
consensus basis, reflecting the views of either the whole member- 
ship or a significant segment thereof. Such a consensus process 
might mean that at times the views of a particular company could 
be contrary or even neutral or disinterested toward the position of 
the industry as a whole. 

Therefore, the political advocacy activities of an association could 
be of little or no direct benefit to an individual member company. 

As a matter of fact, a company may join EIA and contribute 
strictly to support technical, educational, or marketing programs. 

It is for these reasons that I feel very, very strongly that the pro- 
posed policy and implementing regulations are unjustifiably bur- 
densome, inconsistent with congressional intent and will cause fi- 
nancial and operational disruption which will far outweigh any 
benefit to be derived from their implementation. 

We appreciate the tenor of the comments made today and we 
urge your support in seeing that these rules and regulations are 
not imposed on industry. 

[Mr. McCloskey's prepared statement follows:] 



278 

STATEMENT 
OF 
PETER F. McCLOSKEY 
ELECTRONIC INDUSTRIES ASSOCIATION 

MR. CHAIRMAN. AND MEMBERS OF THE SUBCOMMITTEE: 
I AM PLEASED TO APPEAR BEFORE YOU TODAY TO PRESENT THE VIEWS 
OF THE ELECTRONIC INDUSTRIES ASSOCIATION ON OMB'S PROPOSED 
REVISION OF CIRCULAR A-122 AND THE ATTENDANT REGULATORY CHANGES . 
REPRESENTATIVES OF EIA ARE CURRENT! Y WORKING IN COOPERATION 
WITH OTHER ASSOCIATIONS TO PREPARE FORMAL. WRITTEN COMMENTS IN 
RESPONSE TO THE OMB PROPOSALS; THESE COMMENTS WILL BE F INALIZED 
WITHIN THE WEEK AND WILL BE PROVIDED FOR YOUR CONSIDERATION. 
MY REMARKS THIS MORNING WILL ATTEMPT TO BRIEFLY SUMMARIZE SOME 
OF INDUSTRY'S PARAMOUNT CONCERNS ABOUT THE IMPLEMENTATION OF 
THESE REGULATIONS. 

AFTER EXTENSIVE STUDY OF THE PROPOSED CHANGES. IT IS OUR 
CONSIDERED OPINION THAT THE OMB PROPOSAL PLACES AN UNJUST AND 
UNREASONABLE BURDEN ON GOVERNMENT CONTRACTORS. AND MUST BE 
WITHDRAWN. 

THE POLICY AND REGULATORY CHANGES CONTRAVENE EXISTING 
ADMINISTRATION POLICY. AND OVERREACH AND USURP CONGRESSIONAL 
PREROGATIVES AND INTENT WITH REGARD TO RESTRICTIONS ON POLITI- 
CAL ADVOCACY." IN ADDITION. THE VAST EXPANSION OF THE DEFINI- 
TION OF POLITICAL ADVOCACY. COUPLED WITH THE IMPOSITION OF A 
"CONTAMINATION" PRINCIPLE OF DISALLOWANCE OF LEGITIMATE COSTS 
OF DOING BUSINESS. WILL HAVE THE EFFECT OF RESTRICTING THE 
FLOW OF INFORMATION WHICH IS VITAL TO THE DECISION-MAKING 
PROCESS OF CONGRESSIONAL AND EXECUTIVE BRANCH OFFICIALS ALIKE. 

IN ITS OWN PROPOSAL FOR A UNIFORM FEDERAL PROCUREMENT 
SYSTEM RELEASED IN FEBRUARY 1982. THE OFFICE OF MANAGEMENT AND 
BUDGET STATED ON PAGE 25: 

"PRESENT COST PRINCIPLES WILL BE REVIEWED WITH THE OBJEC- 
TIVE OF ALLOWING ALL NORMAL AND NECESSARY COSTS OF DOING BUSI- 
NESS. THE COST PRINCIPLES WILL RECOGNIZE THAT THE DISALLOWANCE 
OF NECESSARY COSTS ERODES CONTRACTOR PROFITS. THIS IN TURN 
REDUCES COMPETITION. THE ONLY UNALLOWABLE COSTS SHOULD BE THOSE 
WHICH ARE AGAINST PUBLIC POLICY." 



279 



are all activities embraced in the proposed definition 
of political advocacy contrary to public policy? we would 
contend that communications between government and industry 
are essential to the proper conduct of business by both par- 
ties, particularly in the highly complex and increasingly 
technical sphere of government contracting. thus, the ans- 
wer to this question must be a resounding, "no!" 

The proposed regulations impose limitations on "lobby- 
ing AND RELATED ACTIVITIES WHICH GO WELL BEYOND THOSE DIREC- 
TED BY CONGRESS. THE DOD APPROPRIATION ACT FOR FY 1983 - 
(PUBLIC LAWS 97-377 AND 97-796) HAS STATED THAT: 

"NONE OF THE FUNDS MADE AVAILABLE BY THIS ACT 
SHALL BE USED IN ANY WAY, DIRECTLY OR INDIRECTLY, 
TO INFLUENCE CONGRESSIONAL ACTION ON ANY LEGISLA- 
TION OR APPROPRIATION MATTERS PENDING BEFORE CONGRESS." 

THIS IS THE ONLY SPECIFIC RESTRICTION ON THE USE OF 
APPROPRIATED FUNDS TO HIRE ANYONE TO LOBBY THE CONGRESS, OR 
TO PROMOTE THE GENERAL PUBLIC'S ENGAGING IN GRASS ROOTS LOB- 
BYING. IT IS CLEARLY IN CONSONANCE WITH INTERNAL REVENUE 
CODE RESTRICTIONS ON BUSINESS DEDUCTIONS FOR POLITICAL ADVO- 
CACY ACTIVITIES. IN SECTION 162(E) OF THE REVENUE ACT OF 
1962, CONGRESS RECOGNIZED THAT A BUSINESS MUST BE ABLE TO 
MONITOR LEGISLATIVE DEVELOPMENTS AND REGISTER ITS VIEWS IN 
ORDER TO FUNCTION EFFECTIVELY IN TODAY'S ECONOMY. THE ACT 
CREATED A SPECIFIC DEDUCTION FOR POLITICAL ADVOCACY, THEREBY 
ELIMINATING CONFUSION CAUSED BY EARLIER REGULATIONS WHICH 
SOUGHT TO DISTINGUISH BETWEEN REGULAR BUSINESS EXPENSES AND 
LEGISLATIVE ACTIVITIES. 

FURTHER AND DEFINITIVE GUIDANCE ON LEGISLATIVE CON- 
TROLS ON LOBBYING IS CONTAINED IN THE FEDERAL REGULATION OF 
LOBBYING ACT, 2 U.S.C., SECTION 261 ET. SEQ, (1946). THAT 
ACT DEFINED LOBBYING ACCORDING TO ITS CURRENT COMMONLY ACCEP- 
TED MEANING, I.E., DIRECT COMMUNICATION WITH MEMBERS OF CON- 
GRESS ON PENDING OR PROPOSED LEGISLATION, 

THE CURRENT OMB PROPOSALS COMPLETELY OVERREACH THESE 
CLEAR EXPRESSIONS OF CONGRESSIONAL INTENT. THEY EXTEND THE 
DEFINITION OF POLITICAL ADVOCACY TO BAR PAYMENT FOR ANY CONTACT; 
WITH RULE-MAKING OR POLICY MAKING PERSONNEL OF THE EXECUTIVE . . 
BRANCH AND STATE AND LOCAL GOVERNMENT ENTITIES. THEY 
WILL HAVE THE EFFECT OF USURPING CONGRESSIONAL PREROGATIVES 



280 



BY RESTRICTING THE FREE FLOW OF INFORMATION BETWEEN INDUSTRY 
AND GOVERNMENT. AND THEY WILL PLUNGE CONTRACTORS INTO THE 
ENVIRONMENT WHICH THEY FACED PRIOR TO THE 1962 REVENUE ACT, 
REQUIRING THEM TO UNDERTAKE THE BURDENSOME TASK OF DETERMINING 
WHAT CORPORATE RESOURCES CAN BE DEVOTED TO ANY FORM OF GOVERNMENT 
RELATIONS WITHOUT RISKING COMPLETE DISALLOWANCE OF THE COST 
OF THOSE RESOURCES UNDER FEDERAL CONTRACTS. 

THIS REPUDIATION AND ALTERATION OF CONGRESSIONAL INTENT 
SHOULD ALONE REPRESENT A COMPELLING ENOUGH REASON FOR THE 
WITHDRAWAL OF THESE REGULATIONS. HOWEVER, THE PROPOSALS GO 
MUCH FURTHER IN THEIR ONEROUS EFFECTS ON THE GOVERNMENT CON- 
TRACTING ENVIRONMENT. THEY WOULD ESTABLISH A "CONTAMINATION" 
(ALL OR NONE) TEST OF POLITICAL INVOLVEMENT WHICH IS IMPRAC- 
TICAL IN TODAY'S CLOSELY REGULATED BUSINESS WORLD. BY ATTEMP- 
TING TO IMPOSE A PHYSICAL WALL OF SEPARATION BETWEEN THE 
ACTIVITIES OF POLITICAL ADVOCACY AND THE ACTIVITIES OF PER- 
FORMING A CONTRACT, THEY WOULD INEQUITABLY BENEFIT THE GOVERN- 
MENT AND PENALIZE CONTRACTORS AT THE SAME TIME. 

THIS WOULD OCCUR BECAUSE REIMBURSEMENT WOULD BE DENIED 
FOR 100 PERCENT OF THE WORK OF AN EMPLOYEE, 99 PERCENT OF 
WHOSE TIME HAD BEEN PRODUCTIVELY SPENT IN SUPPORT OF A CON- 
TRACT AND ONE PERCENT IN POLITICAL ADVOCACY ACTIVITIES. 

THE CONTAMINATION PRINCIPLE WOULD RESULT IN DISALLOW- 
ANCE OF COSTS FOR LEGITIMATE MARKETING ACTIVITIES AS WELL. 
MARKETING EXPENSES INCLUDE COSTS FOR APPLYING OR MAKING A 
PROPOSAL OR BID, OR PROVIDING INFORMATION IN CONNECTION WITH 
SUCH AN AGREEMENT. - 

TO RESTRICT SUCH ACTIVITIES THROUGH DISALLOWANCE WILL 
HAVE THE EFFECT OF CONSTRAINING THE REGULAR EXCHANGE OF DATA 
AND DIALOGUE WHICH CAN HELP DEVELOP SOLUTIONS TO FUTURE RE- 
QUIREMENTS. MARKETING AS A TOTAL FUNCTION BEARS, AND SHOULD 
BEAR, NO RELATION TO POLITICAL ADVOCACY. 

THE DEFINITION OF POLITICAL ADVOCACY ALSO ENCOMPASSES 
CONTACTS WITH STATE AND LOCAL GOVERNMENTS ON MATTERS OF DIRECT 
CONCERN TO CONTRACT PERFORMANCE. EFFORTS BY LOCAL PLANT 
MANAGERS OR EMPLOYEES TO COOPERATE WITH CITY COUNCILS OR OTHER 
LOCAL BODIES ON MATTERS RELATING TO ZONING LAWS, UTILITY RATES, 
RIGHTS-OF-WAY, ETC., WOULD CAUSE THESE EMPLOYEES' SALARIES TO 
BE DISALLOWED FOR A YEAR. THIS WOULD INEVITABLY RESULT IN 
CONSTRAINTS ON THE ACTIVITIES OF CONTRACTOR PERSONNEL IN DECI- 
DING MATTERS DIRECTLY RELATED TO THE HEALTH AND SAFETY OF 
THEIR EMPLOYEES. 



281 



ALL OF THESE UNREASONABLE, PUNITIVE AND BURDENSOME 
EFFECTS WILL FALL MOST HEAVILY ON SMALLER BUSINESSES, SINCE 
THESE ARE MOST VULNERABLE TO ABSORBING COSTS OF DOING BUSI- 
NESS WITH THE GOVERNMENT. IT IS NO EXAGGERATION TO SUGGEST 
THAT MANY WILL SIMPLY LEAVE THE GOVERNMENT MARKETPLACE RATHER 
THAN SUBMIT TO THE ADDED EXPENSE OF PHYSICAL SEPARATION OF 
POLITICAL ADVOCACY RESOURCES AND THE IMPOSITION OF NEW AND 
COMPLEX ACCOUNTING SYSTEM REQUIREMENTS. 

THE EFFECT WILL BE TO FURTHER ERODE COMPETITION FOR 
GOVERNMENT CONTRACTS, AGAIN A VIOLATION OF THE STATED CONCERNS 
OF MEMBERS OF CONGRESS AND THE EXECUTIVE BRANCH. 

AMONG THE MOST FUNDAMENTAL AND CHILLING EFFECTS OF ALL, 
HOWEVER, WILL BE THE UNJUSTIFIABLE RESTRICTION ON THE EXER- 
CISE OF CONSTITUTIONALLY GUARANTEED RIGHTS. SMALLER BUSI- 
NESSES MAY IN SOME INSTANCES SURRENDER THEIR FIRST AMENDMENT 
RIGHTS IN ORDER TO CONTINUE TO RECEIVE GOVERNMENT CONTRACTS. 

THE OMB PROPOSAL WILL INHIBIT ADVOCACY BY BUSINESS AND 
TRADE GROUPS IN GENERAL TO THE ADVANTAGE OF THOSE INTERESTS, 
BOTH FOREIGN AND DOMESTIC, WHICH OPPOSE THEM IN THE POLITICAL 
ARENA. 

HAVING THUS ADDRESSED A NUMBER OF CONCERNS COMMON TO A 
LARGE SEGMENT OF OUR INDUSTRY, I WOULD NOW LIKE TO TOUGH BRIEF- 
LY ON THE SPECIFIC EFFECTS WHICH THESE PROPOSALS WILL HAVE ON 
TRADE ASSOCIATIONS WHOSE MEMBERSHIPS CONSIST IN SIGNIFICANT 
MEASURE OF FIRMS INVOLVED IN GOVERNMENT CONTRACTING. TRADE 
ASSOCIATIONS PROVIDE A NUMBER OF VALUABLE SERVICES TO THE GOVERN- 
MENT AND THE PUBLIC - INCLUDING THE DEVELOPMENT OF TECHNICAL 
STANDARDS, PERFORMANCE OF MARKET STUDIES, AND THE HOLDING OF 
EDUCATIONAL SYMPOSIA. THE PROHIBITION DISALLOWING MEMBERSHIP 
DUES IN ASSOCIATIONS ENGAGING IN ANY DEGREE OF POLITICAL ADVO- 
CACY AS A REIMBURSABLE COST WOULD LIMIT THE ABILITY OF THESE 
GROUPS TO CONDUCT SUCH PROGRAMS THROUGH THE CURTAILMENT OF 
INDUSTRY PARTICIPATION. 

IN ADDITION, IT MUST BE UNDERSTOOD THAT IF, AND WHEN, 
AN ASSOCIATION DOES ENGAGE IN POLITICAL ADVOCACY ACTIVITIES, 
IT IS DONE ON A CONSENSUS BASIS REFLECTING THE VIEWS OF EITHER 
THE WHOLE MEMBERSHIP OR A SEGMENT THEREOF. SUCH A CONSENSUS 
PROCESS MIGHT MEAN THAT, AT TIMES, THE VIEWS OF A PARTICULAR 
COMPANY COULD BE CONTRARY OR EVEN NEUTRAL OR DISINTERESTED 
TOWARD THE POSITION OF INDUSTRY AS A WHOLE. 



282 



THEREFORE, THE POLITICAL ADVOCACY ACTIVITIES OF ASSOCI- 
ATIONS COULD BE OF LITTLE OR NO DIRECT BENEFIT TO AN INDIVIDUAL 
MEMBER COMPANY. AS A MATTER OF FACT, A COMPANY MAY JOIN AN 
ASSOCIATION AND PAY DUES STRICTLY TO SUPPORT TECHNICAL, EDUCA- 
TIONAL OR MARKETING PROGRAMS. 

IN ADDITION, THE BURDEN PLACED ON AN INDIVIDUAL GOVERN- 
MENT CONTRACTOR TO MONITOR AND ASCERTAIN THE PRESENCE AND 
DEGREE OF POLITICAL ADVOCACY PROGRAMS WOULD BE AN UNREASONABLE 
BURDEN IN THAT THE ASSOCIATION ACTIVITIES MAY BE CARRIED OUT 
IN AREAS FAR REMOVED FROM THE INTEREST OR PARTICIPATING AREAS 
OF A MEMBER. 

DUES TO AN ASSOCIATION ARE PREPAID IN MOST INSTANCES, 
AND AT THE TIME OF PAYMENT, AN INDIVIDUAL COMPANY WOULD HAVE 

NO IDEA AS TO THE FUTURE POLITICAL ADVOCACY ACTIVITIES 

AGAIN IMPOSING AN UNREASONABLE BURDEN ON GOVERNMENT CONTRACTORS. 

FINALLY, CONGRESS LEGISLATIVELY HAS DETERMINED THAT TAX- 
EXEMPT ORGANIZATIONS MAY USE "PUBLIC" OR TAX-EXEMPT FUNDS FOR 
DIRECT LOBBYING PURPOSES. THE REGULATIONS BEING PROPOSED FOR 
TRADE ASSOCIATIONS CONTRAVENE THAT LEGISLATIVE INTENT. 

IN CLOSING, MR. CHAIRMAN, LET ME REITERATE THE POSITION 
OF OUR ASSOCIATION THAT THE PROPOSED POLICY AND IMPLEMENTING 
REGULATIONS ARE UNJUSTIFIABLY BURDENSOME, INCONSISTENT WITH 
CONGRESSIONAL INTENT, AND WILL CAUSE FINANCIAL AND OPERATIONAL 
DISRUPTION WHICH WILL FAR OUTWEIGH ANY BENEFIT TO BE DERIVED 
FROM THEIR IMPLEMENTATION. WE URGE YOUR ATTENTION, AND THAT 
OF OTHER CONCERNED MEMBERS OF CONGRESS, TOWARD SEEKING WITH- 
DRAWAL OF THIS ILL-CONCEIVED PROPOSAL. TO THAT END, REPRESEN- 
TATIVES OF THE ASSOCIATION WOULD BE PLEASED TO WORK WITH YOU 
AND MEMBERS OF YOUR STAFF IN ANY WAY YOU FEEL APPROPRIATE. 

I WOULD BE PLEASED TO RESPOND TO ANY QUESTIONS. 



283 

Mr. Brooks. Thank you very much for a good statement. It was 
well thought out, constructive, and helpful. 

Does your organization have purely informational contacts with 
Government agencies that would be curtailed by the proposed OMB 
regulation? 

Mr. McCloskey. We certainly have a number of purely informa- 
tional activities that would be impacted. Whether they will be cur- 
tailed depends on the companies themselves, and on the number of 
member companies which would decide to stay in and continue to 
participate. 

In our association we have broad representation by a number of 
industry segments. In one group within the association we are con- 
cerned with consumer electronics activity; in another, government 
electronics; in another, telecommunications and related activities. 

Right now there is a major issue on the consumer side concern- 
ing whether or not it should be legal for programs to be taped off 
the air. 

The activities we are involved in with respect to that area of con- 
cern might in some way affect the EI A government division, which 
has no interest in that particular issue under the provisions of Cir- 
cular A-122 as currently proposed. 

So you would call into question whether the association's activi- 
ties which are paid for out of the dues of the members that are in 
one portion of the business would unduly affect those activities in- 
volving another business completely. It would be an absurd result. 

Mr. Brooks. Mr. Horton? 

Mr. Horton. Thank you very much. I don't have any questions. 

Mr. Brooks. Thank you very much for coming down. 

Next we will hear from Mr. Robert O. Bothwell, executive direc- 
tor of the National Committee for Responsive Philanthropy. He has 
also served as Deputy Director of the U.S. Office of Economic Op- 
portunity, Community Action Research and Demonstration 
Division, and has worked for NASA, the U.S. Conference of 
Mayors, the National League of Cities, and the National Urban Co- 
alition. 

We welcome you here today. We will be pleased to enter your 
statement in the record in its entirety. 

Mr. Bothwell. Yes, sir, I would welcome that. 

Mr. Brooks. And perhaps the foundation factsheet, which I think 
has some good analyses in it, should also be put in the record. 

STATEMENT OF ROBERT O. BOTHWELL, EXECUTIVE DIRECTOR, 
NATIONAL COMMITTEE FOR RESPONSIVE PHILANTHROPY 

Mr. Bothwell. Certainly, sir. Thank you for that. I would like to 
offer a quick summary of my testimony. 

My name is Robert Bothwell, executive director of the National 
Committee for Responsive Philanthropy. The committee is a coali- 
tion of minority, women's, consumer and other organizations con- 
cerned with social justice. We work with our membership and with 
hundreds of other such organizations to increase the very small 
amount of philanthropic money that goes to newer, smaller, non- 
profit organizations, especially those dealing with nontraditional or 
unpopular causes. 



20-644 O— 83 19 



284 

I am here today to express very strong opposition to the proposed 
revisions to Circular A-122. You have already heard from many 
that these revisions would have a devastating effect on many im- 
portant nonprofit organizations. I would add particularly that the 
small nonprofit organization would be most affected. 

In addition you have also heard that this would curtail, have a 
chilling effect on, the public debates in which these organizations 
take part. We would agree with that. But so many have spoken to 
that, I don't want to, nor could I add too much about their analy- 
ses. 

The prime additional reason to be here today is to point out that 
the drastic changes that are proposed to Circular A-122 are not an 
isolated phenomenon. In fact they are the genesis perhaps of a 
Hydra-headed monster. 

For example, the Circular A-122 revisions are remarkably simi- 
lar to changes made just 2 weeks ago in the Federal Government's 
on-the-job charity fundraising drive, the Combined Federal Cam- 
paign. 

This campaign, one of the largest in the country, raises $100 mil- 
lion a year in charitable contributions from Federal employees. 
From Federal employees, mind you, not from the Federal Govern- 
ment. The Combined Federal Campaign has just been subjected to 
the same devastation as the Circular A-122 changes and it would 
indeed wreak some havoc on the charities that now participate in 
it, as well as those that would like to but have not yet been able. 

Let me give you the quote in this new Executive order that will 
do such damage: 

Any organization that seeks to influence * * * the determination of public policy 
through * * * advocacy, lobbying or litigation on behalf of parties other than them- 
selves will simply no longer be eligible to receive Federal employee contributions. 

The main victims of this change are going to be organizations 
that work actively with the needy, minorities, women, and to pre- 
serve a healthy environment. But it is not going to stop there. You 
heard the American Lung Association say how it, too, would be af- 
fected by the Executive order. I want to give you another example. 

I was up in Boston this weekend. There is in Boston an organiza- 
tion by the strange name of BUG, which stands for Boston Urban 
Gardners. This group develops community vegetable gardens for 
low- and moderate-income neighborhoods as a helpful way of deal- 
ing with food shortages and nutrition. It has had lots of Federal 
dollars. Those dollars are now disappearing. The organization is 
desperately trying to increase its private funds. 

What it has done in the past year is join with 14 other various 
community local service organizations to seek private funds availa- 
ble through workplace charity drives. 

BUG has a goal, to seek private contributions from State employ- 
ees for their worthwhile efforts of developing community gardens 
in low income neighborhoods. But in seeking to raise those private 
funds from State employees they are going to have to advocate to 
the Governor's office and indeed even lobby the legislature, since 
currently only one or two organizations are allowed to solicit from 
State employees. 



285 

What you can see is that the proposed revisions to Circular A- 
122, would inhibit this excellent volunteer organization from advo- 
cating or lobbying in Massachusetts to gain access to State employ- 
ee contributions, because the organization is small with few staff, 
none of whom could the organization afford to dedicate totally to 
lobbying, and because the organization could not afford to set up a 
separate office for its limited lobbying. But the new CFC Executive 
order, another Hydra head of the Circular A-122 revisions, would 
be even more disastrous for this organization as it would totally 
prohibit the organization from lobbying to seek State employee 
contributions if the organization wants to receive Federal contribu- 
tions. 

So the administration, which is publicly encouraging voluntarism 
and private giving, has raised more regulatory barriers to this ex- 
cellent voluntary organization trying to increase its private giving. 
This is utter hypocrisy and it is devastating in its impact not only 
for this little Boston organization but for thousands more like it 
across the country. 

To conclude, what I would urge the committee is not only to seek 
complete withdrawal of the proposed revisions to Circular A-122 
but also to eliminate the side effects of these insidious revisions by 
taking whatever action is necessary to gut or to override the new 
Executive order on the Combined Federal Campaign. 

Thank you very much for this opportunity to testify. 

[Mr. Bothwell's prepared statement follows:] 



286 



TESTIMONY 

of 

Robert O. Bothwell 

Executive Director 

National Committee for Responsive Philanthropy 

to the 

Subcommittee on Legislation and National Security 

of the 

Committee on Government Operations 

March 1, 1983 

My name is Robert Bothwell. I am executive director of the National 
Committee for Responsive Philanthropy. The Committee is a coalition of 
minority, women's, consumer and community organizations. We work to increase 
the very small amount of philanthropic money that goes to these types of 
organizations. 

I am here today to express our strong opposition to the Office of Manage- 
ment and Budget's proposed revisions to Circular A-122, revisions that we 
think would have a devastating effect not only on many important private, non- 
profit organizations, but also on the vital debate about public policy. We 
are alarmed by OMB's proposals because they would control not only traditional 
lobbying of legislators, but also nearly every other form of speech available 
to a nonprofit organization, including the right to be heard in the courts, 
the right to associate with other organizations, the right to criticize or 
advise government officials, and the right to speak to citizens about important 
public policy issues. We are also alarmed by OMB's proposals because they 
would inordinately harm certain types of nonprofit organizations, specifically 
those that are committed to helping minorities, women, the poor and other 
people who lack power in our society. 

I am also here today to point out that the drastic change in Circular A-122 
is not an isolated phenomenon, as well as to explain the role and history of 
charitable organizations, a role and history that the Reagan Administration 
is apparently trying to deny. 

The Administration's proposed changes in Circular A-122 are remarkably 
similar to changes made two weeks ago in the government's on-the-job fund-raising 
drive, the Combined Federal Campaign. The Campaign is one of the largest 
sources of private support for charitable organizations, raising $100 million 
a year in gifts from federal employees. 

During the past three years, because of the prodding of Congress and the 
courts, the list of organizations that federal employees can support has grown 
considerably. In addition to United Way agencies such as the YMCA and health 
groups such as the American Lung Association, federal employees can have gifts 



287 



deducted from their paychecks for groups concerned about civil rights, women's 
rights and environmental protection. While giving to the Campaign went down 
in the year prior to these changes, it has gone up in every year that employees 
were given a broader range of charities to support. 

However, in an executive order signed by President Reagan on February 10, 
the Administration has decided to eliminate nearly all of these newly-admitted 
charities. I think the Subcommittee will find the language of that executive 
order very interesting. In addition to saying that charities can be eligible 
only if they provide certain types of services to individuals, the executive 
order says that any organization that "seeks to inf luence. . .the determination 
of public policy through ... advocacy , lobbying, or litigation on behalf of 
parties other than themselves" cannot participate in the Campaign. 

The main victims of this change will be organizations that actively work 
to help the needy, minorities and women, groups such as the NAACP Legal Defense 
and Educational Fund, the NOW Legal Defense Fund, the Native American Rights 
Fund, the National Black United Fund, the Martin Luther King Center for Non- 
violent Social Change, Vietnam Veterans of America Foundation, the Children's 
Defense Foundation and the Natural Resource Defense Council. However, the 
executive order will also hurt mainline charities such as the American Lung 
Association if they do things such as trying to influence government policy 
on smoking, a fact that an Administration official confirmed to a New York 
Times reporter (see attached article) . 

Why are these extraordinary changes being made? The Administration argues 
that the inclusion of agencies that try to influence government policy has 
created controversy that will decrease giving. There has indeed been controversy 
about a few of the newly admitted organizations. However, that controversy 
has not hurt giving. In fact, during this past fall's campaign, overall giving 
went up more than 7% according to the Office of Personnel Management, the first 
time since 1977 that the increase in giving has exceeded inflation. 

The real reason these changes are being made in the Combined Federal Campaign 
is the same reason the changes in A-122 are being made: the Administration's 
frightening desire to control the actions of private nonprofit organizations, 
particularly those that are trying to help the people being hurt by many of 
the Administration's policies. 

It is extremely important to realize that the effects of the changes in 
A-122 and in the Federal Campaign will not be neutral. They will have far more 
impact on agencies that do not have as many other sources of private funding, 
especially newer organizations, and agencies run by the poor, minor ites, women 
and community residents. These types of organizations receive very little 
money from private philanthropy, particularly foundations, corporations and 
United Ways, a fact that has been documented by numerous studies done during 
the past decade. We have attached a fact sheet that cites many of these 
studies. I will note only a couple: in 1978, a Ford Foundation-supported study 
found that groups trying to improve the status of women received only 0.6% of 
the money given away by foundations. According to the Conference Board, "women's 
causes" received but 0.3% of the money given away by corporations in 1980. 
According to a Latino Institute study, organizations helping Hispanics received 
but 1% of foundation grants made in 1977 and 1978. These studies are all 
national-in-scope; the results of studies of philanthropic funding in particular 
cities or states are even bleaker. 



288 



Because of this stark reality of philanthropic funding, it's clear that 
the severe restrictions on advocacy contained in Circular A-122 and the new 
executive order for the Federal Campaign will strike hardest on organizations 
helping women, minorities and the poor. These organizations are struggling 
simply to survive; they don't begin to have the private funds to set up 
separate staffs and offices to do advocacy. Thus, what you have here is the 
Administration that has been so intent on cutting off money to minorities, 
women and the poor now trying to cut off their voices, as expressed through 
the organizations that represent them. 

I don't think there can be any doubt that part of the motivation for these 
changes is to hurt many of the organizations that have been criticizing the 
Administration's policies. It is ironic that the Administration defends 
Circular A-122 by saying it wants to reduce the political impact of government 
funding when the effects of A-122 will be profoundly political. It is also 
ironic that this is the Administration that says it wants to reduce govern- 
ment control over our lives when the effects of these two actions will be to 
impose severe controls on the actions of private, nonprofit organizations. 

But I don't think politics is the only motivation for these two actions. 
They also reflect a profound misunderstanding of the history and role of non- 
profit charitable organizations, as well as a terribly narrow view of the 
proper relationship between these private organizations and government. 

The executive order concerning the Combined Federal Campaign says that 
any agency that trys to influence public policy through advocacy, lobbying 
or litigation "shall not be deemed charitable health and welfare agencies...." 
That is an extraordinary statement. Throughout history, private charitable 
organizations have tried to influence public policy that affects the people 
those organizations are trying to help. According to the Oxford English 
Dictionary, an early definition of "charity" was "fairness, equity." The 
Hebrew word that translates most closely to "charity" is "tsedaka," which 
means "justice or righteousness," according to Carl Bakal, author of Charity 
USA . 

In the 19th century, Dorothea Dix spent much of her life advocating for 
improved treatment of the mentally ill. During the Civil war, the Sanitary 
Commission, a private group set up to give voluntary support to the army, did 
not simply provide relief supplies but also prodded the government to see that 
its resources were used effectively. Its oversight role was extremely important, 
as have been the oversight roles of hundreds of other private charities. In 
the lead essay for a blue-ribbon study of philanthropy done in the 1970s, 
Robert Bremner says that a "marked tendency" of this country's charities has been 
to "encourage, assist and even goad democratic government--and democratic citizens- 
towards better performance of civic duties and closer attention to social require- 
ments." 

Congress, the Internal Revenue Service and the courts have all recognized 
the legitimacy of this role for charities. Indeed, in 1976, Congress expanded 
the amount of advocacy that charitable organizations could perform. Thus, these 
actions by the Administration clearly contradict the will of Congress, to say 
nothing of the way these actions defy the Constitution by trampling on a chari- 
table organization's right to express its views. 



289 



These two actions by the Administration not only show an ignorance of the 
role and history of charities, they also show a distorted view of the proper 
relationship between charities and government. In a democracy, the government 
must encourage the voices of people as expressed through the voluntary associa- 
tions they form, not suppress those voices. In a democracy, those voices are 
vitally important to make government work. As the government needed the Sanitary 
Commission during the Civil War to improve its effectiveness, so government 
today needs to hear about the effectiveness of its many programs from the organi- 
zations that are trying to implement or oversee these programs. As a report to 
the Canadian government by the National Advisory Council on Voluntary Action 
put it, a democratic government should encourage the participation of private 
charitable organizations in public policy debates "not because they represent 
the public interest, but because it is in the public interest that they parti- 
cipate." The Advisory Council believed that direct government support of 
advocacy organizations was desirable because "it is the responsibility of 
government to ensure that all possible voices are heard, including dissident 
voices; and that, on every issue warranting public debate, as many options as 
possible are presented, documented and considered. Such an approach is a basic 
condition for an effective democratic process." 

Interestingly, instead of worrying about the supposed evils of the govern- 
ment supporting advocacy, the Advisory Council was worried about government 
funding having precisely the opposite effect. The Council noted that, when a 
voluntary organization takes government funding to provide some service, it 
often moves away from an advocacy role into a service-providing role. Plus, 
the organization's desire to keep receiving government funding often causes 
it to "become excessively cautious about antagonizing granting agencies and 
losing future grants." The report adds, "An association may gradually and 
almost unconsciously accommodate itself to the f under over time. Such accommo- 
dation can be seriously compromising, especially for social-action groups." 

To summarize, the proposed changes in Circular A-122 would have a devastating 
effect on private, nonprofit organizations, especially those set up to help 
minorities, women and the poor. It would also stiffle the important dialogue 
between private, nonprofit organizations and government, making these organiza- 
tions little more than conduits for government funds. Congress should instruct 
the Administration to immediately withdraw this proposed change in Circular A-122. 

In addition, to be consistent, Congress should also instruct the White 
House to withdraw the restrictive changes made in the executive order for the 
Combined Federal Campaign, changes that would also impose severe restrictions 
on the legitimate activities of charitable organizations. The Campaign should 
be continued under the rules in effect last fall. Because these rules allowed 
federal employees to support a broad range of charities, they led to the biggest 
increase in giving since 1977. It's ironic that President Reagan, who has said 
so often that he wants increases in private giving to help counter his budget 
cuts, has agreed to a change that will discourage private giving by federal 
employees. 

I want to thank the subcommittee for allowing me to testify and for becoming 
concerned about these vitally important issues affecting nonprofit organizations. 



290 






S!)c JCclu Jjork etmcjs 



THURSDAY, FEBRUARY 17, 1983 



Where 
Charity 
Begins 



By MICHAEL deCOURCY HINDS 

SfxcUl [o TV Nr» YortTUoca 

WASHINGTON, Feb. 16 — If Presi- 
dent Reagan has his way. Federal 
workers will no longer be able to make 
about $4 million in payroll pledges to 
nonprofit groups advocating such 
things as women's rights, civil rights 
and environmental Issues. 

To give more help to the "the poor, 
the infirm, the hungry and the truly 
needy," as a Administration official 
put it, the President will no longer 
allow Federal workers and service- 
men to pledge payroll contributions to 
charitable groups that advocate social 
change. Direct donations are, of 
course, unaffected. 

In announcing Mr. Reagan's recent 
executive order on the subject, Donald 
J. Devine, director of the Office of 
Personnel Management, said last 
Thursday that the President was 
trying to "avoid the reality and the ap- 
pearance of the use of Federal re- 
sources in aid of fund raising for polit- 
ical and advocacy groups." 

This decision could mean a loss of 
several million dollars to about 36 so- 
called legal defense funds. 

Planning a Challenge 
Groups likely to be cut from the offi- 
cial roster include the Sierra Club 
Legal Defense Fund, the NAACP 
Legal Defense and Educational Fund, 
Inc., Vietnam Veterans of America 
Foundation and the Center for Science 
in the Public Interest. A coalition of 
these groups, which gained access to 
the Federal paychecks only in the past 
fes: years, met today to start planning 
a le^al strr.tegy to remain in the an- 
nual f_.i drive. 

"It's utterly hyp>-ritical of Presi- 
dent Rearjan to say he vants to in- 
crease private giving and then cut 
dozens of charities from the fund-rais- 
ing campaign," said Timothy Saasta, 



Legal defense funds 
are organizing 
to challenge the 
executive order. 



a spokesman for the National Com- 
mittee for Responsive Philanthropy. 

The new eligibility criteria are 
likely to exclude only a few conserva- 
tive groups. Prominent among these 



is the National Right to Work Fuinda- 
tion, which fueled the long-?immering 
controversy by gaining admission to 
the Federal Combined Campaign l*»t 
July. Labor unions fiercely opposed 
participation by this group, which pro- 
vides free legal service to "victims of 
compulsory unionism," according to 
Joanna Boyce. a spokesman. 

Drive by United Way 
Such controversy does not sit well 
with the mainstream charities, which 
rely heavily on payroll contributions 
made to the United Way of America. 
United Way, which collected Jl 68 bil- 
lion from all public and private 
sources in 1981, organized a coalition 
of 20 major charities last year to peti- 
tion the President to consider new re- 
strictions. His executive order closely 
follows their requests. 

Debate over admission to the Fed- 
eral charity drive began In 1962, when 
President Kennedy opened up the pro- 
gram to "health and welfare charities 
and others." 

Mr. Reagan's order states that eligi- 
bility "shall be limited to voluntary, 
charitable, health and welfare agen- 
cies that provide or support direct 
health and welfare services to individ- 
uals of their families." It adds, 
"Agencies that seek to influence the 
outcomes of elections or the determi- 
nation of public policy through politi- 
cal activity or advocacy, lobbbying, or 
litigation on behalf of parties other 
than themselves" shall not be eligible 
to participate. 

LI mltatloQ on Testifying 
Much uncertainty exists because 
the personnel office has yet to write 
regulations putting the executive 
order into effect. The restrictions on 
lobbying, for example, are so stiff that 
representatives of the American Lung 
Association, which supported the 
order, would no longer be able to tes- 
tify at Congressional hearings in favor 
of advertising regulations for ciga- 
rettes. Joseph A. Morris, general 
counsel of the Federal personnel of- 
fice, the principal author of the execu- 
tive order, said in an recent interview 
that any group that lobbied for any 
public policy would be ineligible for 
participation. 

The stakes are big. Last year, the 
2.8 million Federal workers and 2.2 
million members of the armed serv- 
ices authorized the Government to de- 
duct $100 million for donations to 111 
individual charitable organizations 
and 11 umbrella groups such as United 
Way. Federal donations increased by 
a near record of seven percent, but 
pledges earmarked for United Way 
decreased by more than W million. 

"A lot of the money went to special 
interest groups," said Steve Detfin, a 
spokesman for United Way. "I'm not 
saying that they don't have valid so- 
cial roles, but they tend to drain 
money away from the priority health 
and welfare needs." 



J|gl»*.».,:SrV***mJ#^*««W 



291 






Wednesday, February 23, 1983 



Advocacy Groups Protest New Rules 
Restricting the Federal Charity Drive 



By Karlyn Barker 

Washington Post Surf Writer 

President Reagan's newly issued 
restrictions on the government's an- 
nual charity drive have drawn pro- 
■ tests from civil rights, environmental 
and women's rights groups, who say 
they are being kicked out of the 
drive because they advocate liberal 
social and public policy views. 

The groups, organized as the Na- 
tional Coalition to Expand Charitable 
Giving, expect to go to court soon to 
fight their ouster on constitutional 
grounds- They have focused their ob- 
jections on a section of the president's 
executive order that bans participa- 
tion in the drive by groups that try to 
influence public policy through advo- 
cacy, lobbying or litigation. 

Among some 36 organizations 
likely to be cut from the drive's eli- 
gibility list are the NAACP Legal 
Defense and Education Fund, the 
Vietnam Veterans of America Foun- 
dation, the Children's Defense Fund, 
the Sierra Club, the Center for Sci- 
ence in the Public Interest and legal 
defense and education funds for the 
National Organization for Women 
and Federally Employed Women. 

Reagan's order, according to Don- 
ald J. Devine, director of the Office of 



Personnel Management, will encour- 
age federal workers to make payroll 
contributions to more traditional 
health and welfare agencies that pro- 
vide direct services to the poor. 

But some of the advocacy groups 
affected complain that no other 
charitable solicitation drive is lim- 
ited in this way. They warn that 
mainline charities such as the Amer- 
ican Lung Association, Planned Par- 
enthood and even United Way, 
which collects 72 percent of the con- 
tributions, could be excluded be- 
cause of the lobbying and legal ad- 
vocacy prohibitions. 

"It's an assault on private giving," 
argues Robert Bothwell, executive 
director of the National Committee 
for Responsive Philanthropy. 

Payroll deductions to the Com- 
bined Federal Campaign (CFC) 
raised $13.7 million here and $93 
million nationwide from government 
workers in 1981, constituting the 
largest charity solicitation drive in 
the country. Last fall's drive is ex- 
pected to top that sum by about 7 
percent nationally and 4.5 percent in 
the Washington area, although the 
total is still being calculated. 

With millions of dollars at stake, 
groups in the CFC have fought to 



stay there and other organizations 
have sued for the right to participate 
in the drive. Last year's drive includ- 
ed liberal and conservative groups 
and legal defense funds who would 
be barred from participation under 
the new executive order. 

The new restrictions are being 
hailed by the United Way of Amer- 
ica, which formed a coalition of 20 
other CFC groups last yeai to lobby 
for the changes. 

"Opening up the campaign to ad- 
vocacy or political groups causes 
people to get upset," said Steve Del- 
fin, director of media relations for 
United Way of America. "And when 
that happens, they don't designate 
[to a specific charity], they boycott." 

Delfin said he hope* the impend- 
ing regulations implementing the 
order will he flexible enough on the 
advocacy section so as not to be a 
problem for his group. 

Newly admitted groups say overall 
contributions have climbed as the 
drive has been opened up, but Delfin 
said United Way-funded agencies lost 
S3 million in contributions during the 
1982 drive because of the controversy 
surrounding the admission of advo- 
cacy groups, particularly the National 
Right to Work Foundation. 



292 



FOUNDATION FACT SHEET 

5/4/81 
GENERAL INFORMATION : 

21,505 "active grant -making" foundations 

$34.8 billion in assets 

$2.24 billion in grants during 1979 

Foundations account for approximately 5.2j>ercent of total philanthropic 
giving (which totaled over $43 billion in 1979) 

Philanthropic expenditures equal between 3-4% of the federal government's 
expenditures on education, health, social welfare and science. 

Of the 21,505 foundations: 

18 821 have assets under $1 million 

3,138 have assets above $1 million or make grants totalling at least $100,000 

473 have assets above $10 million 

41 have assets above $100 million 

DISTRIBUTION OF FOUNDATION GRANTS : 

Education 29Z International Activities 6Z 

Health 20Z Humanities HZ 

Sciences & Technology 19 Z Religion 2Z 

Welfare l3Z 

According to a 1975 National Science Foundation-sponsored study done by 
the Human Resources Corporation: 

Spanish-heritage groups received 0.8 percent of foundation grant 
funds in 1972-73 (they constituted 5 percent of the population) 

Asian Americans received 0.1 percent of foundation grant funds (they 
constituted 0.6 percent of the population) 

Less than half of those grants went to organizations controlled 
by the minorities. 

According to a 1978 study of 131 Chicago foundations coaimissioned by 
Chicago's Donor's Forum: of a total $74 million in grant funds, 

1.4Z went to neighborhood and community development 

I.7Z to social equality 

0.8Z to environment 

3.9Z to agencies controlled by Blacks and 0.5Z to agencies controlled 
by Hispanics (nearly half of Chicago's population is minority) 

70 agencies recieved 70Z of the total; one recipient — the University 
of Chicago-received 10Z 



National Committee for Responsive Philanthropy, 810-18th St., N.W. Washington, D.C. 20006 






293 



According to a 1977 study of 196 foundations based in the Southeast which 
was commissioned by the Southeastern Council of Foundations: of all 
foundation grants, 

2% went to minority organizations (minority populations in Southeastern 
states range from 12 to 35 percent) 

0.5% went to "human rights and minority affairs." 

According to a 1978 study of 153 Washington, D.C. foundations done by the 

Community Support Fund: of all foundation grants distributed to organiza- 
tions which provided apparent benefits to D.C. residents, 

2.0% went to legal assistance 

2.0Z to housing and neighborhood development 

.27Z to employment/labor 

.582 to rights of racial minorities, women, elderly and youth 

• 27Z to energy/science/transportation 

.251 to consumer affairs 

. I4Z to economic development/small business 

.09Z to public policy 

.00Z to natural resources/environment 

"St. Albans, a private school, received more than the entire category 
of housing and neighborhood development." 

According to a 1973 Council on Foundation survey of 460 member foundations: 

3.4Z of their grant monies were directed specifically to women (for 
scholarships) and/or to primarily feminine organizations or causes 

According to a 1979 study by the Ford Foundation: 

less than 0.6Z of foundation funding in 1976 went to projects designed 
to improve women's rights and opportunities, and 

One-third of foundation money for this purpose came from one foundation 
during the years 1970-1976. 

FOUNDATION GOVERNANCE : 

According to a 1977 study by John Nason which was commissioned by the 
Council on Foundations: 

0.3Z of foundation trustees are minorities 

"Foundation trustees are for the most part a self-perpetuating group, 
a social and economic elite, .. .still convinced that the foundation is 
their private affair." 

According to a 1976 study by the Planning Committee for Women in Foundations: 

34Z of foundations have no women board members 

There are 6.5 males trustees to 1.5 female trustees 

19Z of all trustees are women 

FOUNDATION ACCESSIBILITY : 

According to the Council on Foundations: 

less than 500 of the country's 21,505 foundations publish annual reports. 



294 

Mr. Brooks. Thank you for your very perceptive and well-stated 
remarks. 

I would like to ask you one question. Do you see the proposed 
changes in the OMB circular and CFC regulations as an effort by 
the administration to favor only those organizations that are 
friendly to it? 

Mr. Bothwell. Undeniably so. The main targets for the new 
Combined Federal Campaign Executive order are clearly advocacy 
organizations such as the NAACP Legal Defense, and Education 
Fund, environmental organizations such as the Natural Resources 
Defense Council, women's organizations, and many local organiza- 
tions similarly advocating on minority, women's, environmental 
and other social justice issues. 

However, the strange thing, the unintended side effect, is that 
the new CFC Executive order is also going to have a tremendous 
impact on the very traditional mainline charities that deal with 
every manner of social service, housing, economic development, 
employment issues in this country. So it is like the administration, 
I think, as Congressman Conable has said, tried to use a 16-inch 
gun to kill a fly. 

Mr. Brooks. I sure thank you. 

Mr. Horton. 

Mr. Horton. I have no questions. Thank you very much. 

Mr. Brooks. Our next witness is Mr. John D. Kessler, vice presi- 
dent for public affairs of the American Heart Association. In this 
capacity he is director of the office of public affairs here in Wash- 
ington. Prior to his current appointment he served for many years 
with the Heart Associations of Virginia, Maryland, and Illinois. 

Mr. Kessler received his bachelor of science degree from Bradley 
University and has worked as a reporter, columnist, and freelance 
writer. 

We are delighted to have you here and we will appreciate hear- 
ing your comments. 

STATEMENT OF JOHN D. KESSLER, VICE PRESIDENT FOR PUBLIC 
AFFAIRS, AMERICAN HEART ASSOCIATION 

Mr. Kessler. Thank you, Mr. Chairman. I am John D. Kessler 
and I am vice president for public affairs of the American Heart 
Association. 

The American Heart Association is a major national voluntary 
health organization that was organized in 1949 and that has as its 
mission the reduction of premature death and disability from car- 
diovascular disease. 

The AHA represents some 120,000 volunteers, including 20,000 
scientific members, and some 2 million volunteers who are engaged 
in its program and fundraising efforts at the community level. 

The AHA is a charitable, nonprofit organization and is tax- 
exempt under section 501(c)(3) of the Internal Revenue Code. 

Mr. Chairman, I appreciate the opportunity to address the com- 
mittee on the revision of Circular A- 122 that is currently proposed 
by the Office of Management and Budget, and on Executive Order 
12404 dated February 10, 1983, which governs the Combined Feder- 
al Campaign. 



295 

The American Heart Association is deeply concerned that the 
proposed revision of OMB Circular A-122 and Section 3 of Execu- 
tive Order No. 12404 on the Combined Federal Campaign would 
force health, educational, and other organizations to make an unac- 
ceptable choice, that being either to relinquish their constitutional 
right to advocate their positions within lawful limits or to abandon 
their role as health providers who depend to some extent upon Fed- 
eral grants and contracts or upon the charitable contributions of 
Federal personnel to support their programs. 

I would like to address two points that are very much at issue 
today. First, the Federal Government has a legitimate role and, in 
fact, a serious responsibility to protect and promote the health and 
welfare of its citizens. 

Second, the right of Americans, either individually or collective- 
ly, to engage freely in speech and political expression is guaranteed 
under the first amendment to the Constitution. 

Both of these traditional precepts would be undermined if these 
proposals are approved. To receive Federal moneys a health and 
welfare regulation would be required by Circular A-122 substan- 
tially to curtail, or to give up altogether, its right to advocate its 
positions to Congress, to Federal health officials, and to the regula- 
tory agencies. 

In order to retain the right to advocacy an organization would 
have to give up the CFC contributions of Federal employees that 
could be, for certain small organizations, an important share of the 
resources that enable it to serve health and welfare needs. We at 
the American Heart Association strongly object to such a choice 
even being suggested, much less ordered. 

The American Heart Association would not itself be substantial- 
ly affected by the proposed revision of Circular A-122 since we par- 
ticipate in few projects that are funded directly by Federal grants 
or contracts. We have no quarrel with the requirement that Feder- 
al funds should not be used directly to advocate or to influence 
public policy. 

However, Circular A-122, a masterpiece of hair splitting detail, 
goes well beyond that caveat and would make it impossible for 
many organizations that receive even small grants to assist the 
Congress in its goal to promote a healthier America. 

In each of its last three budget proposals the administration has 
made major cuts in the funding levels for the biomedical research 
and prevention programs of the National Institutes of Health. We 
at the American Heart Association, along with the American Lung 
Association, the American Cancer Society, and countless other 
health organizations make it a point each year to present scientific 
testimony to congressional committees about the devastating ef- 
fects this lack of funding would have on the research capability 
and productivity of the NIH. 

Alerted in part by this advocacy Congress has in its wisdom in- 
creased NIH funding levels well beyond the President's request 
each year. This is but one of many instances in which our ability to 
educate and inform the Members of Congress has worked to the 
common good. The proposed regulations could prevent such worth- 
while undertakings. 



296 

It would further appear that these measures would remove the 
right granted to charitable organizations under section 501(c)(3) of 
the Internal Revenue Code to engage in limited advocacy activity. 
American Heart feels that this right, now guaranteed under law, 
should remain intact. It should not be abridged by agency rulemak- 
ing that would directly contravene existing tax laws. 

We believe that the proposed revision of Circular A-122 is too 
broad and expansive in its definition of political advocacy. 

It would extend the definition of advocacy far beyond the scope 
of any restrictions currently imposed by Congress through appro- 
priations bills, program statutes, or the tax laws. 

In point of fact I could not, without invitation, appear before you 
today or even submit comment to OMB on future revisions to Cir- 
cular A-122 without engaging in political activity as defined in this 
proposal. 

We believe that the OMB has exceeded its statutory authority 
which is to evaluate and oversee the operation of Federal pro- 
grams. OMB has no statutory authority to restrict nonprofit orga- 
nization grantees from lawful participation in the Federal decision- 
making process. 

The proposal would exact unreasonable and excessive penalty for 
violation of its restrictions. Not only would an organization be 
denied reimbursement for political activity but it would also be 
denied reimbursement for nonpolitical activities as well. 

The American Heart Association urges that A-122 be withdrawn. 
If the accounting for expenditure of Federal grant or contract 
funds must be revised, the proposed rule should be replaced with 
language better conceived, much more narrowly drawn, and more 
firmly based on current tax laws and the intent of Congress. 

We would also urge that the Executive Order No. 12404 be fur- 
ther amended, or at least that the regulations proposed by the 
Office of Personnel Management to implement the Executive order 
clearly affirm that those organizations who currently have the 
right under law to participate in limited political advocacy activi- 
ties be allowed to continue those activities without becoming ineli- 
gible to participate in the Combined Federal Campaign. 

This Executive order was published on February 10, 1983, as an 
amendment to Executive Order No. 12353 governing the Combined 
Federal Campaign. 

The principal effect of the amendment, and one supported by the 
American Heart Association and other major health and welfare 
organizations, is to limit eligibility for participation in the CFC to 
voluntary charitable organizations that provide support for direct 
health and welfare services to individuals and their families. 

However, the amendment also provided that agencies that seek 
to influence the outcomes of elections or the determination of 
public policy through political activity or advocacy, lobbying, or 
litigation on behalf of parties other than themselves shall not be 
deemed charitable health and welfare agencies and shall not be eli- 
gible to participate in the Combined Federal Campaign. 

In discussions among charitable health and welfare organiza- 
tions, this last provision restricting political advocacy has been 
termed the baby with the bath water provision. 



297 

On the one hand it would seem to favor health and welfare orga- 
nizations with a special place within the Combined Federal Cam- 
paign. 

On the other hand, it would deny them eligibility to participate 
in the CFC if they continued to engage in activities allowable 
under current tax laws. 

This seems to be a case of the Executive order giveth, and the 
Executive order taketh away. 

The American Heart Association sees nothing illegal, improper, 
or inappropriate in carrying out our traditional role of advocacy on 
behalf of the public health of our Nation. We are already absolute- 
ly restricted from any overt political activity by section 501(c)(3) of 
the IRC. Strict limitations are imposed therein both on the kind 
and the extent of educational and informational efforts we can un- 
dertake. 

This proposal would force us to choose between a substantial por- 
tion of our income from the Combined Federal Campaign and the 
lawful execution of our right to advocate public policies that serve 
the health interests of all Americans. 

I realize that in my comments I have addressed the issue of Cir- 
cular A-122 and that of the Executive order on the CFC. Perhaps it 
is inappropriate to mingle these separate concerns before this com- 
mittee. 

One rule, A-122, is being promulgated by the Office of Manage- 
ment and Budget, and the regulations to implement the Executive 
order will soon be promulgated by the Office of Personnel Manage- 
ment. 

One wonders how or why these two very similar but separate 
issues have arisen within such a short span of time in two separate 
agencies of the Federal Government. Perhaps they are but separate 
manifestations of a central concern within the administration that 
the Congress, in imposing tax laws and other constraints on chari- 
table organizations, has somehow been so permissive with respect 
to political advocacy that the administration must intervene with 
agency rules to correct the situation. 

Our hope is that this committee and other committees of Con- 
gress will respond by denying funds to these agencies to implement 
these rules if they are not, as they should be, withdrawn or at the 
very least drastically amended. 

Mr. Chairman, I thank you for the opportunity to speak today. 

Mr. Brooks. Thank you very much. I have one question, Mr. 
Kessler. 

If local chapters of organizations such as yours are compelled to 
duplicate facilities and personnel in order to comply with the OMB 
proposal, do you foresee an increase in the cost of delivering serv- 
ices both to the Federal Government and to others? 

Mr. Kessler. Yes, sir. Duplication of those services would be im- 
possibly costly for small organizations. What very likely would 
result is that these organizations would withdraw from advocacy, 
would withdraw from seeking to participate in developing the 
health plans of their State or city governments. 

The advocacy rule is too broad and sweeping. As Mr. Horton 
said, it would throw out the baby with the bath water. 

Mr. Brooks. Mr. Horton. 



298 

Mr. Horton. I have no questions. 

Mr. Kessler. Thank you. 

Mr. Brooks. Now, the first shall be last and the last shall be 
first. We have Mr. Jacob Clayman, president of the National Coun- 
cil of Senior Citizens, as our last witness. Until his retirement in 
1979, Mr. Clayman was president of the Industrial Union Depart- 
ment of the AFL-CIO. He was a member of the Advisory Commit- 
tee of the 1981 White House Conference on Aging and has served 
as the president of the Consumers Federation of America, a 
member of the Federal Advisory Council on Employment Security, 
and trustee of the United Community Funds and Councils of Amer- 
ica. 

Mr. Clayman received his bachelor's degree from Oberlin College 
in 1927 and his law degree from the University of Michigan in 
1930. He has practiced law in Detroit and served in the Ohio Legis- 
lature. 

We welcome you here today. Please proceed with your remarks. 

STATEMENT OF JACOB CLAYMAN, PRESIDENT, NATIONAL 
COUNCIL OF SENIOR CITIZENS 

Mr. Clayman. Thank you, Mr. Chairman, and Congressman 
Horton. That is a better introduction than I normally get, and I 
thank you for it. 

Mr. Brooks. You deserve it all. 

Mr. Clayman. As I come up at the end of this great proceeding I 
thought I almost heard a psychic sigh of relief from the people up 
front. I think it is a magnificent achievement that you have run 
through 29 witnesses or more in this brief period. Let me see if I 
can bobtail my written statement. 

Mr. Brooks. We will accept the full statement for the record and 
you go ahead and make your statement. It is a good statement. 

Mr. Clayman. Let me tell you a bit about the National Council 
of Senior Citizens to make the case I would like to make. The Na- 
tional Council of Senior Citizens intensely, passionately believes in 
honest advocacy. We were born in the cradle of typical old-fash- 
ioned American advocacy in the early 1960's, the battle for medi- 
care started in earnest in the country and in Congress. Answering 
the call of that struggle we started the National Council and so we 
fought with might and main; and in 1965, we along with others 
prevailed in that fight for another piece of social justice for the el- 
derly. 

Yes, we believe in advocacy for everybody, individuals and orga- 
nizations. This is simply another way of saying that we believe in 
the first amendment and any impingement of that sacred amend- 
ment will make America the lesser for it. 

That, in our judgment, is what the new proposed amendments to 
Circular A-122 would do. 

Another facet of the National Council: We also, for example, for 
14 years, through Democratic and Republican administrations, 
have managed a portion of the senior community service employ- 
ment program known as title V, a Federal program to train elderly 
poor people and return them to permanent jobs in the private 
sector. 



299 

In addition, these 54,200 older workers in the program perform 
invaluable community services in nursing homes, day care centers, 
and in social service agencies. I believe, and I hope this isn't puf- 
fery, that we have done a remarkable job of it. 

The administrative costs to the Government is only 6.5 percent 
and that, Mr. Chairman, is extraordinary. It means that we have 
been darned efficient. It means that we have been doing an honest 
job. It means that we have not tried to rake any undue profits, 
indeed any profits from the program. 

No one has raised a finger of concern or criticism at our manage- 
ment of the activities in this program. No one has charged that we 
have used Federal funds for political purposes. But, apparently, to 
those who promulgated the amendments to Circular A- 122, we 
have committed the desperate crime of having people who work on 
this program housed on one floor of our building which we recently 
purchased. We use the same Xerox equipment and the mailroom 
personnel for the regular and Federal program, but, of course, 
charging the Federal Government only for those services per- 
formed in behalf of title V activities. 

The amendment says we can't do this, we must move the title V 
employees elsewhere, we cannot utilize the economies which the 
use of our full facilities makes possible. 

In effect, the Government is saying "increase overhead costs, in- 
crease the complexity of doing a decent job," and this foolishness 
inevitably would hamper our capacity to perform as effectively as 
we now do. 

Indeed, there are some valid questions that can be asked, that 
the Government needs to ask. One, for example, is: Is the organiza- 
tion receiving Federal funds and using them efficiently and effec- 
tively in furtherance of the law upon which the grant is based? 

That is a valid and honest question. 

The second question is: Is the organization which is the recipient 
of Federal funds using those funds for political purposes? That is a 
valid and honest question. 

But the OMB amendments go far beyond these sensible and per- 
tinent questions and would raise such irrelevant matters as the ab- 
solute separation of office space, usage of equipment and other in- 
consequential arrangements. 

These questions can only serve the purpose of harassment and 
not the meaningful purpose of effectively carrying out the mandate 
of the law. 

Now, then, let me make a very practical little point here. This 
program occupies one floor of our building. It is separate from the 
rest of the building. It is self-contained. Our charge is, I think, $14 
a square foot. If we have to move we would have to pay at least $24 
or $26 a square foot. For what purpose? What sense? What practi- 
cality? 

That is a question that I think the answer to is rather obvious. 

But most of all, and this is what is most relevant, at least in my 
mind, most of all it will seriously tend to still the voice of advocacy. 
It will destroy small organizations of senior citizens, charity insti- 
tutions and others which have accepted Federal funds and this, in 
my judgment, would be a tragedy. 



20-644 0-83 20 



300 

Heaven knows there are too few organizations now to present 
the views of the poor, the consumers and the elderly. The Govern- 
ment performs a great disservice to the cause of democracy in our 
society by depleting, as it would, inevitably, the ranks of these or- 
ganizations by way of this transparent A-122 maneuver. 

Presumably, the alleged purpose of this new proposed set of regu- 
lations is to remove politics from Federal grants and contracts. But 
I am genuinely fearful that the Government's action, itself, is a 
piece of Machiavellian political mischief. 

You will remember that over the past 2 years those on the far 
right of the political spectrum have inveighed against organizations 
receiving Federal funds for the poor and the elderly. You will re- 
member that they sounded their clarion call to the White House 
and Congress trumpeting "Defund the left, defund the left." 

My judgment at least is that this present OMB regulation quite 
apparently is the Government's response to the right wing's chal- 
lenge. Though masked somewhat, the purpose of the administra- 
tion, in my opinion, is abundantly clear, indeed transparent: Un- 
dermine the nonprofit institutions trying to keep alive the con- 
science of America. 

We urge you to permit this not to come to pass. It is one of the 
great assets that our society has. It is almost a priceless asset that 
common citizens, ordinary citizens have the power, for example, 
and the right to come before a committee like this and plead their 
case. If this is eroded, if this is eroded, we shall be in trouble. 

So we ask you to uphold the worth of advocacy in America and 
stand fast to the principles of the first amendment. 

I probably took more time than I intended to for which I ask 
your forgiveness. 

Mr. Brooks. We thank you very much. You didn't take too much 
time. We enjoyed it. You are a great advocate. You have been one 
all your life. You can continue to be one as far as we are con- 
cerned. 

Mr. Clayman. Thank you, sir. 

Mr. Brooks. Mr. Horton? 

Mr. Horton. Thank you very much. We are happy you could be 
with us. We appreciate your waiting until the tail end. Thank you. 

Mr. Brooks. Saved the best for last. 

[Mr. dayman's prepared statement follows:] 



301 



Statement by 

Jacob dayman, President 
National Council of Senior Citizens 



Mr. Chairman, members of the Subcommittee, my name is Jacob 
dayman. I am the President of the National Council of Senior 
Citizens, a non-profit public interest group dedicated to serving, 
protecting and defending the interests of the 4.5 million senior 
citizens we represent. 

At times, such representation takes the form of political 
advocacy — such as when we fought, hand-in-hand with Lyndon Baines 
Johnson, for the establishment of a national health insurance 
program for the elderly, Medicare. And at times, such representa- 
tion takes the form of service delivery — in our case through the 
operation of a federal grant program that puts 54,200 low-income 
older people to work in 127 communities around the country. 

Through these activities, we believe that we are serving the 
legitimate interests of our members, and the elderly in general, 
and performing a valuable service on behalf of the government. 
Beyond the restrictions found in current law, we do not see these 
as functions that should be considered mutually exclusive. In 
fact, it is far more rational for close coordination to exist be- 
tween advocacy and service delivery; without it, the ability of 
our government to meet the needs of its citizenry would steadily 
deteriorate . 

That is why, Mr. Chairman, we were shocked to learn of the 
proposed new regulations issued by the Office of Management and 
Budget that would fundamentally alter the way in which non-profit 
organizations and other government contractors conducted their 
business. The proposed regulations, innocuously called amendments 
to Circular A-122 "Cost Principles for Non-profit Organizations" 
would require a complete segregation of our grant activities from 
activities termed "political advocacy." The practical effect of 
this proposal would be that either our federally funded senior 
citizen employment program and its staff, or individuals involved 
in advocacy, including the Executive Director, Legislative Depart- 
ment, and Information Department staff would have to leave our 
recently purchased headquarters . In order to continue receiving 
grant reimbursement, grant activities and advocacy activities 
could no longer take place under the same roof. 



302 



The OMB definition of advocacy goes far beyond any definition 
found in current law or regulation and would include among other 
changes: 1) any activity that attempts to influence government 
decisions through an attempt to affect the opinions of the general 
public; 2) any attempt to influence government decisions through 
communications with any member or employee of a legislative body 
or with any government official or employee who may participate 
in the decision-making process; 3) provision of technical advice 
or assistance to a governmental body or to a committee unless it 
is in response to a written request. This last restriction would 
severely hamper communications vital and necessary for effective 
grant administration. 

According to the OMB notice, the reason for issuing these 

proposed revisions to the A-122 Circular is to 

ensure that the use of federal grants, contacts 
and other agreements by private organizations 
engaging in political advocacy does not erode 
or infringe these [First Amendment] constitu- 
tional rights, or distort the political 
process by encouraging or discouraging certain 
forms of political activity. 

In fact, the effect of these revisions would be to do both. 
According to a recent paper prepared by Jack Maskell of the Ameri- 
can Law Division of the Congressional Research Service, the pro- 
posed rule would restrict the First Amendment protections, OMB 
says it is trying to uphold: 

...the regulations may work in practice to 
restrict the use by private organizations of 
their own personnel, equipment and office 
space for First Amendment activity if during 
some period such personnel or equipment were 
used in carrying out a federal grant or con- 
tract and the costs of such use were propor- 
tionately allocated to that contract or grant. 

Moreover, this rule would very definitely distort the politi- 
cal process. Clearly, large government contractors, particularly 
defense contractors, would be better able to weather this storm 
and have ample resources to set up separate offices and continue 
their political and lobbying activities. Smaller groups, partic- 
ularly community-based organizations with staffs of three or four 
people, often use the same resources for both grant and advocacy 
activities. The effect of the OMB rules on these groups would be 



303 



paralyzing. Because the regulations would no longer allow 
reimbursement for resources partially used in grant activities 
when these resources are also used in privately funded advocacy 
activities, such groups would be forced either to give up their 
government grants or dispense with their legitimate advocacy 
activities. 

Mr. Chairman, I believe that these proposed revisions are a 
blatant attempt on the part of this Administration to silence 
those groups which have expressed opposition to the domestic and 
social policy agenda set by President Reagan. The pretension that 
these rules merely attempt to separate political advocacy and 
government grant activities masks a much more insidious goal, that 
is, to force small non-profit organizations to choose between 
reliable, secure government funding, or scarce, uncertain private 
funds in order to function. The former choice means giving up the 
right to participate in the political process; the latter, in 
many cases, may mean shutting down. 

Regardless of whether these rules are implemented or not, 
NCSC will survive. We are a large organization with a secure 
base of financial support derived from our members and other sup- 
porting groups. Our voices at least, will continue to be raised 
in opposition to the policies of this Administration when we see 
fit to do so. But we, too, will be affected. 

As I mentioned, NCSC operates an older workers' jobs program 
of which I believe most of you have heard, the Senior Community 
Service Employment Program (SCSEP). For the past 14 years, we 
have acted as a conduit between the government and some of its 
lowest income senior citizens to train and place older people in 
community service jobs. Through this program, thousands of senior 
citizens have returned to the mainstream of society, working in 
nursing homes, day care centers and social service agencies. Each 
year more and more of our Senior Aides are being placed in jobs 
in the private sector, thereby achieving an important goal set by 
this Administration as an essential part of its employment policy. 
With an historic record of administrative costs of under 
seven percent, it is no wonder that the Federal government con- 
tinues to fund our Senior AIDES Program and to seek our opinion 
concerning program modifications and improvements. However, with- 
out any question whatsoever, we believe that the proposed OMB 
revisions will endanger our fine record of administrative effi- 



304 



ciency by barring necessary interactions with the government. 

In its expanded definition of political advocacy, the regu- 
lations specifically cite "providing technical assistance to a 
government body" unless requested in writing as one example of 
unreimbur sable activities . This would prevent anyone working on 
our program staff from notifying the Department of Labor about 
any sort of management inefficiency or other problem we note in 
our monitoring responsibilities. For example, recently we noticed 
that an error in the Department of Labor SCSEP regulations made 
everyone with an income 125 percent above the poverty level 
eligible for the program. In reality, it is those with incomes 
less than 25 percent over the poverty level that are eligible. 
If these OMB regulations had been in effect, we would have had 
to remain silent about this error until the Department of Labor 
found out about it by itself. 

Frankly, Mr. Chairman, it would make more sense to consider 
the sweeping and radical changes proposed in the OMB Circular in 
the face of serious violations of existing statutes and regula- 
tions. I know that in the case of NCSC, at least, we go to great 
lengths to assure that there is no commingling of federal and 
private funds, and that grant activities are separate from 
advocacy activities. Our Senior AIDES Program, its personnel and 
its office machines are all located on one floor of our small 
building. While there is some sharing of other facilities such 
as xeroxing and use of mail room personnel, such sharing is 
accounted for and the appropriate source is billed for these ser- 
vices. No federal funds that are received by NCSC are used for 
political purposes. 

If the Administration is so convinced that these regulations 
are necessary, let them come forth with proof. We have seen 
nothing to substantiate the need for this revision. 

Mr. Chairman, if these regulations were to go into effect, 
the restrictions it would place upon our organization would be 
difficult to endure. But, ultimately, the real losers would be 
the elderly people themselves. NCSC, along with so many organi- 
zations here today, performs a valuable service to this country. 
We speak on behalf of those not here to represent themselves. 
Together with other aging organizations, we have made great 
stride in reducing poverty, ill-health and isolation among our 
senior citizens. Our employment program has put thousands back 
to work in useful part-time jobs. 

These new regulations could well reduce our effectiveness 
in all of these areas, and do so to the detriment of millions of 
older people. We urge you and the members of this Subcommittee 
to oppose the issuance of these rules. Thank you. 



305 

Mr. Brooks. Both the Congress and the Supreme Court have long 
recognized the importance of encouraging and fostering the advoca- 
cy of ideas by the private sector. Now the administration has pro- 
posed to stifle political advocacy by many of our most respected 
and active business and nonprofit organizations. In the process 
they threaten the cherished first amendment rights to freedom of 
speech and association. 

The administration has stated that it will issue revised regula- 
tions in about 10 days. In my opinion, the only acceptable revision 
may be the immediate withdrawal of the proposal. 

I would like to thank all the witnesses that appeared today and 
presented testimony. The hearing is adjourned subject to the call of 
the Chair. 

[Whereupon, at 4:12 p.m., the subcommittee adjourned, to recon- 
vene subject to the call of the Chair.] 



APPENDIXES 



APPENDIX 1.— PROPOSED CHANGES TO OMB CIRCULAR 

A-122 

Changes Proposed in the "Cost Principles for Nonprofit 
Organizations" (OMB Circular A-122) and the 
Procurement Regulations of DOD, GSA, and NASA 



Ca) The cost of activities constituting political advocacy 
are unallowable. 

Cb) Political advocacy is any activity that includes: 

(1) Attempting to influence the outcome of any 
Federal, State, or local election, referendum, 
initiative, or similar procedure, through 
contributions, endorsements, publicity, or 
similar activity; 

(2) Establishing, administering, contributing to, 
or paying the expenses of a political action 
committee, either directly or indirectly; 

(3) Attempting to influence governmental decisions 
through an attempt to affect the opinions of 
the general public or any segment thereof; 

(4) Attempting to influence governmental decisions 
through communication with any member or employee 
of a legislative body, or with any government 
official or employee who may participate in the 
decisionmaking process; 

(5) Participating in or contributing to the expenses 
of litigation other than litigation in which the 
organization is a party with standing to sue or 
defend on its own behalf; or 

(6) Contributing money, services, or any other thing 
of value, as dues or otherwise, to an organization 
that has political advocacy as a substantial 
organizational purpose, or that spends $100,000 or 
more per year on activities constituting political 
advocacy. 

(c) Political advocacy does not include the following 
activities: 

(1) Making available the results of nonpartisan 

analysis, study, or research, the distribution of 
which is not primarily designed to influence the 
outcome of any Federal, State, or local election, 
referendum, initiative, or similar procedure, or 
any governmental decision; 

(307) 



308 



(2)L Providing technical advice or assistance to a 
governmental body or to a committee or other 
subdivision thereof in response to a written 
request by such body or subdivision; 

(3) Participating in litigation on behalf of other 
persons, if the organization has received a 
Federal, State, or local grant, contract, or other 
agreement for the express purpose of doing so; 

C4) Applying or making a bid in connection with a 
grant, contract, unsolicited proposal, or other 
agreement, or providing information in connection 
with such application at the request of the 
government agency awarding the grant, contract, 
or other agreement; or 

(.5) Engaging in activities specifically required by 
law. 



(d) An organization has political advocacy as a 
"substantial organizational purpose" if: 

(.1) The organization's solicitations for membership or 
contributions acknowledge that the organization 
engages in activities constituting political 
advocacy; or 

(2) Twenty percent (20%) or more of the organization's 
annual expenditures, other than those incurred in 
connection with Federal, State or local grants, 
contracts, or other agreements, are incurred in 
connection with political advocacy. 



te) The term, "governmental decisions" includes: 

(1) The introduction, passage, amendment, defeat, 

signing, or veto of legislation, appropriations, 
resolutions, or constitutional amendments at the 
Federal, State, or local level; 

(.2) Any rulemakings, guidelines, policy statements, 
or other administrative decisions of general 
applicability and future effect; or 

(3), Any licensing, grant, ratemaking, formal 

adjudication, or informal adjudication, other 
than actions or decisions related to the 
administration of the specific grant, contract, 
or agreement involved. 



309 



(f). Notwithstanding the provisions of other cost 
principles in this part: 

(1) Salary costs of individuals are unallowable if: 

(il the work of such individuals includes 

activities constituting political advocacy, 
other than activities that are both 
ministerial and non-material; or 

Cii) the organization has required or induced such 

individuals to join or pay dues to an organiza- 
tion other than a labor union that has political 
advocacy as a substantial organizational purpose,) 
or to engage in political advocacy during non- 
working hours. 

(2) The following costs are unallowable: 

ti) building or office space in which more than 
5% of the usable space occupied by the 
organization or an affiliated organization 
is devoted to activities constituting political 
advocacy; 

Cii) items of equipment or other items used in part 
for political advocacy; 

(iii) meetings and conferences devoted in any part to 
political advocacy; 

(iv) publication and printing allocable in part to 
political advocacy; and 

(v) membership in an organization that has political 
advocacy as a substantial organizational purpose, 
or that spends $100,000 or more per year in 
connection with political advocacy. 



310 
APPENDIX 2.— CRS ANALYSIS 

March 9, 1983 




John J. Lordan, Chief 
Financial Management Branch fflCA ofllul'SA 

Office of Management and Budget r^^A i".'.' ,-f\ < H 

Washington, DC 20503 .w.' jus'" 

Wjv , „.,!,„, PC MM* 
Re: Proposed Revisions to Circular A-122 -,,.,,. 

Dear Mr. Lordan: 

The YMCA of the USA urges the complete withdrawal of the proposed 
revisions to Circular A-122 ( Federal Register , January 24, 1983). On 
February 18, the Government Affairs Committee of the board of directors 
voted unanimously to oppose these amendments. These revisions would 
hinder YMCAs locally and nationally in their appropriate roles as com- 
munity leaders and service providers. Further, we believe the revisions 
directly threaten First Amendment rights to participation in the pro- 
cesses of government, as well as exceed OMB's authority. 

The nearly 2,000 YMCAs in this country constitute an invaluable reser- 
voir of experience in the kinds of people-to-people programs this 
Administration has claimed it desires to foster. Most of this work 
occurs without government funding. Other programs have required govern- 
mental support (sometimes at the government's request ) and indeed apply 
that governmental support to fulfill society's obligations more effec- 
tively and more efficiently than direct - government action — to meet 
needs of the elderly, to help prevent juvenile delinquency, to develop 
the job skills of unemployed youth, to resettle refugees, etc. 

To preclude the participation of YMCAs and other nonprofit service 
providers in public decision-making is to deny them a fundamental 
right and to deny government itself the benefit of such informed parti- 
cipation. The appropriate relationship of government and the nonprofit 
organizations receiving federal funds is already well-defined by restric- 
tions in tax law and in the present Circular A-122. We 

therefore urge the proposed amendments be withdrawn in Equ- Huff 

I'o^iilcnl. \attfnial (tiuitr/1 
their entirety. 

Ikih Yuitdfrau 
t 'i.'.rrmntt. Satumnt Btxtrti 
Sincerely, ».!.,„ B. Cusir* 

« S~\ /~) £..•■> uliivlVnnor 

Solon B. Cousins 
Executive Director 
YMCA of the USA 

cc: House Government Operations Subcommittee on Legislation & National Security 
House Judiciary Subcommittee on Civil & Constitutional Rights 
Senate Governmental Affairs Subcommittee on Intergovernmental Relations 



311 



EXECUTIVE SUMMARY 



The Office of Management and Budget has proposed amendments to Circu- 
lar A-122, "Cost Principles for Nonprofit Organizations" (48 F.R. 3348- 
3351, January 24, 1983) which deal with (1) the disallowability of the 
costs of a nonprofit grantee or contractor of the federal government for 
"political advocacy" activities and (2) the disallowability of the allo- 
cation of actual costs of an organization to a federal contract or grant 
for the organization's equipment, supplies, and personnel used on that 
contract or grant if such items are used at other times for political 
advocacy activities. The stated purpose of the proposal "is to ensure 
that federal tax dollars are not used, directly or indirectly, for the 
support of political advocacy" (48 F.R. 3348). This report discusses 
two legal issues concerning this proposal: (1) the authority of 0MB to 
issue these restrictions and to promulgate the stated policy and (2) 
the First Amendment considerations involved in governmental regulation 
of political advocacy of private organizations. 

The exercise of legislative power is vested in the Congress, and leg- 
islative functions may be exercised by an executive agency only insofar 
as the authority to do so is delegated to the agency by Congress. Chrysler 
Corporation v. Brown , 441 U.S. 281 (1978); see also Youngstown Sheet & Tube 
v. Sawyer , 343 U.S. 579 (1952). Generally, if no express delegation to 
act on a particular subject is apparent, the courts will look to determine 
if the purposes of an executive rule, regulation or other promulgation 
may rationally be within or have a "nexus" to the purpose of a general 
statutory delegation of authority. See AFL-CIO v. Kahn , 618 F.2d 784 
(D.C. Cir. 1979); Liberty Mutual Insurance Co . v. Freidman , 639 F.2d 164 
(4th Cir. 1981). 

There is no clear indication of any express statutory delegation of 
authority from Congress to the Office of Management and Budget to issue 
rules and regulations regarding political advocacy by nonprofit organi- 
zations receiving federal grants, nor to establish rules to effectuate 
a general governmental policy of non-involvement or nonsubsidization of 
advocacy. Insofar as the cost accounting and allocation rules in the 
first part of the 0MB proposal prohibit a grantee from allocating to a 
federal grant the costs of unauthorized advocacy activities, or the 
costs of any advocacy activities unrelated to the purposes of a grant, 
such prohibitions on diversion of grant funds may arguably come within 
some general delegation of statutory authority to 0MB under a statutory 
provision which has grant management, or cost and efficiency purposes, 
depending on which statute 0MB cites as providing such general authority 
to issue regulations on this subject. 

However, as to the second part of the proposal which works to restrict 
an organization's use of its own equipment, facilities, and personnel for 
First Amendment activities if such items were ever used on a grant and the 
costs properly allocated to that grant, the connection with any cost sav- 
ings or economy to the government is more obscure. The duplication of 



312 



- ii 



facilities by contractor or grantee organizations which these restrictions 
may require if an organization wishes to engage in First Amendment advocacy 
and still receive contracts and grants, may in fact provide diseconomies 
to the government. The purpose of such a rule which would work, in practice 
to prohibit the use of such items on First Amendment advocacy activities 
at any time is apparently related to the general goal stated in the OMB 
proposal to prevent even indirect "support of political advocacy" and to 
prevent government involvement in the private advocacy of ideas, regard- 
less of cost or efficiency motives. Arguably, then, the "nexus" of this 
part of the proposal to a general statute with management, cost and effi- 
ciency purposes, particularly with no record or findings of cost savings 
established, would be more tenuous and questionable. 

If the restrictions in the OMB policy are found to burden, directly 
or indirectly, the exercise of First Amendment rights, then an even more 
specific grant of statutory authority, and more specific guidelines from 
Congress may be required than in cases such as AFL-CIO v. Kahn, supra , 
and Liberty Mutual , supra , where merely a rational "nexus" between the 
policy stated in the executive order and the purpose of a general statutory 
delegation was needed to be shown. A further significant distinction to 
note in this regard is that the actions challenged in both Kahn and 
Liberty Mutual were pursuant to a specific executive order issued by the 
President, while in the case of the OMB regulations this policy has been 
promulgated with no executive order on the subject. Case law has shown 
that the issuance of regulations which affect fundamental liberties, with- 
out express delegation of legislative authority nor under a lawful execu- 
tive order, particularly where no hearings nor any record on the issue 
has been established, might be found to deprive persons of a fundamental 
liberty without due process of law. Kent v. Dulles, Secretary of State , 
357 U.S. 116 (1958); Hampton v. Mow Sun Wong , 426 U.S. 88 (1976); Haig v. 
Agee , 453 U.S. 280 (1981). 

Considering the broad policy nature and purpose of the proposed restric- 
tions; the existence of specific congressional enactments in this area, 
some with arguably contrary purposes to those stated by OMB; the potential 
effect of the OMB restrictions on fundamental liberties guaranteed by the 
First Amendment; and the absence of express congressional delegation of 
authority to OMB or a specific executive order on this subject, questions 
may be raised under judicial precedents as to whether an agency such as 
OMB, rather than the Congress or the President, is the proper "level" for 
promulgating such a policy. Hampton v. Mow Sun Wong , supra at 102-105, 
114-117. 

When the substantive prohibitions in the OMB proposal are contrary 
to or clash with express or implied authorization from Congress, for 
example, for program recipients to advocate for certain persons or groups, 
or to promote certain services or items, then the "express or implied will 
of Congress" authorizing such activity, evident in a statutory grant or 
its legislative history, would arguably take precedence over an OMB policy 
issued without express congressional delegation of authority. See Youngs- 
town Sheet & Tube, supra. 



313 



- iii - 



The proposal on its face deals with restrictions and regulation of 
private persons in the area of the exercise of First Amendment rights. 
The OMB proposal does not place a direct prohibition upon engaging in 
First Amendment activities. However, the Supreme Court has found that 
even indirect burdens on First Amendment freedoms which may result from 
governmental action may subject a regulation to a "critical" and exact- 
ing scrutiny since the "abridgment of such rights, even though unintended, 
may inevitably follow from varied forms of governmental actions". NAACP 
v. Alabama , 357 U.S. 449, 460-461 (1958). The impact on First Amendment 
rights which the financial requirements and the conditions on advocacy 
activities set as requisites for the receipt of federal monies within 
the proposal (see Speiser v. Randall , 357 U.S. 513 (1958); Perry v. 
Sinderman , 408 U.S. 593, 597 (1972); note also Blitz v. Donovan, Secre- 
tary of Labor , 538 F. Supp. 1119 (D.D.C. 1982), vacated as moot , 51 
U.S.L.W. 3507, January 10, 1983) may thus arguably subject such regu- 
lations to the traditional test of governmental burdens on First Amend- 
ment rights, that is, (1) that the government must demonstrate a suffi- 
ciently important or compelling governmental interest in the restric- 
tions and (2) that the regulation on activity is narrow and precise and 
is sufficiently related to the stated governmental interest, that is, 
that the regulation is not overbroad. First National Bank v. Bellotti , 
435 U.S. 765, 786 (1978); Buckley v. Valeo , 424 U.S. 1, 14, 25 (1976); 
NAACP v. Button , 371 U.S. 415 (1963); Shelton v. Tucker , 364 U.S. 479 
(1960). 

The significance of the governmental interest asserted in the pro- 
posal is difficult to assess because there have been no findings or 
record established of the specific abuses or harms at which the restric- 
tions are aimed. The general governmental interest stated in the pro- 
posal, preventing the use of tax money to support private advocacy, if 
stated by the Congress or the President may arguably provide a signi- 
cant governmental interest against which a court may weigh the burden 
on First Amendment rights arguably imposed by the requirements of the 
proposal. However, the sufficiency of this interest asserted by OMB 
may be diminished by the fact that neither the Congress by legislation 
nor the President by executive order has stated this interest on behalf 
of the government in relation to these regulations, and by the related 
fact that the express authority of OMB to "legislate" this policy in this 
area and assert this general interest is not apparent from any specific 
legislation. See Hampton v. Mow Sun Wong , supra at 105, 115-116. 

The sufficiency of the interest asserted by OMB must also be measured 
against apparently contrary assertions by the Congress in numerous sta- 
tutory schemes regarding both the direct and indirect subsidization of 
advocacy such as, for example, the use of public tax money to subsidize the 
advocacy of presidential candidates, tax provisions to exempt from fed- 
eral income taxation nonprofit organizations who may engage in political 
advocacy, the indirect subsidization of certain nonprofit organizations 
by way of federal tax deductions to the contributors of such organizations 
which are allowed to "lobby" to a particular degree, as well as specific 
statutory schemes where Congress has appropriated money for programs to 
advocate for a certain segment of society such as the poor, the aged, 
consumers or minority groups. Additionally, the Supreme Court has noted 
our government's "profound national commitment to the principle that debate 



314 



on public issues should be uninhibited, robust, and wide open", New York. 
Times v. Sullivan , 376 U.S. 254, 270 (1964). The Court has specifically 
rejected a constitutional challenge to the use of tax money to support 
private political advocacy, by finding that there is no constitutional 
requirement of government non-involvement or neutrality in First Amendment 
advocacy, and holding that the challenged provision is a "use [of] public 
money to facilitate and enlarge public discussion and participation in 
the electoral process, goals vital to a self-governing people." Buckley 
v. Valeo , supra at 92-93. 

Both the interest of cost control in preventing the diversion of 
grant funds to unauthorised uses, and the interest of fairness in gov- 
ernment contracting and the letting of grants, may be important govern- 
mental interests which might arguably be asserted by 0MB, depending upon 
the statutory grant upon which 0MB relies for its authority to issue 
such regulations. The question of overbreadth, however, may be parti- 
cularly related to these stated interests. As to fairness in govern- 
ment contracting and the prevention of a "spoils system, " there may argu- 
ably be "less restrictive means" of accomplishing this objective than 
barring all advocacy with any of an organization's equipment or supplies 
which had previously been used on, and costs properly allocated to, a 
federal grant or contract. See Shelton v. Tucker , supra at 489; Schaum- 
berg v. Citizens for a Better Environment , 444 U.S. 620, 637-639 (1975). 
The enforcement of rules and regulations requiring the selection of the 
most qualified bidder at terms most beneficial to the government, with- 
out regard to political bias, may arguably supply a less restrictive 
and more effective means of accomplishing this goal. It should also 
be noted that there are actually no rules or guidelines in this parti- 
cular 0MB proposal to prevent favoritism or a "spoils system" at which 
0MB claims the circular is aimed. Thus, grants and contracts could still 
be let to favored organizations which have enough private funding to be 
financially able to set up separate advocacy facilities, and the regu- 
lations therefore may arguably not be sufficiently related to this purpose 
stated as their justification. See Schuamberg , supra at 638; Bates v. 
City of Little Rock , 361 U.S. 516, 525 (1960); NAACP v. Alabama , supra 
at 464. Similarly, the fact that the proposal may burden the use by a 
private organization of its own facilities for First Amendment activities, 
even when that particular use is proportionally paid for entirely out 
of private funds, may arguably not have a sufficient enough connection 
to the stated goal of cost control by preventing diversion of grant funds 
and the goal of preventing tax dollars to support advocacy, since no gov- 
ernment grant funds are diverted nor tax dollars involved in such use. This 
part of the regulation may thus arguably be an overbroad restriction 
sweeping within its scope protected First Amendment activities not hav- 
ing a sufficient enough relationship to the stated governmental objec- 
tives and interests. 

Questions may therefore be raised under a First Amendment analysis 
as to both the sufficiency of the governmental interest asserted by 0MB 
in the restrictions, and as to the "overbreadth" of the application of 
the restrictions. 



315 



ANALYSIS OF POTENTIAL LEGAL ISSUES WHICH MAY EE RAISED CONCERNING OMB 
PROPOSED AMENDMENT TO CIRCULAR A-122, REGARDING POLITICAL ADVOCACY 
BY NONPROFIT GRANTEES OF THE FEDERAL GOVERNMENT 

This report discusses potential legal and constitutional issues which may 
be raised concerning the proposed amendments by the Office of Management and 
Budget to Circular A-122, "Cost Principles for Nonprofit Organizations", see 
48 F.R. 3348-3351, January 24, 1983. The proposal deals with (1) the dis- 
allovability of the costs of a nonprofit grantee or contractor of the federal 
government for activities which are related to what OMB has characterized as 
"political advocacy", and (2) the disallowability of the proportional alloca- 
tion of actual costs of an organization to a federal contract or grant for the 
organization's equipment, supplies, and facilities used on that contract or 
grant if such equipment, supplies and facilities belonging to the organization 
were used at other times for the organization's advocacy activities. Due to 
the timeliness of the issue, and the required response time, this report will 
provide an overview of only two legal issues which may arise concerning the pro- 
posal, in response to congressional inquiries on those two issues: (1) the 
authority of OMB to issue such regulations, and (2) First Amendment considera- 
tions involved in government regulation of political advocacy of private 
organizations. 

The proposed amendments to the OMB circular specifically provide that: 
"The cost of activities constituting political advocacy are unallowable". 
(Proposed paragraph B 33 a.). This provision in the first instance would 
require that nonprofit organizations receiving federal grant or contract 
money from an agency or department of the federal government not use such 



20-644 0—83 21 



316 



CK.S-2 

aoney to pay for or support, nor allocate costs to a federal grant for, activi- 
ties of the organization which fall within 0MB' s purview of "political advo- 
cacy". The tern "political advocacy" is defined in the proposed amendments 
to include (1) an attempt to influence the outcome of any election, referen- 
dum or initiative at the state, local or federal level; (2) supporting, 
establishing, or contributing to a political action corxnittee; (3) attempting 
to Influence governmental activity by affecting public opinion; (A) attempting 
to influence governmental decisions through direct communication with mem- 
bers or staff employees of a legislative body, or of any agency participating 
in the decisionmaking process; (5) contributing to or participating in the 
expenses of any litigation except that in which the organization is a party 
with standing to sue or defend on its own behalf; (6) supporting or contributing 
money to an organization that has political advocacy as a substantial organiza- 
tion purpose or which spends $100,000 a year on political advocacy. Activities 
which would not constitute political advocacy under the circular include (1) 
making available results of nonpartisan analysis, study or research the dis- 
tribution of which is not primarily designed to influence an election or legis- 
lation; (2) providing technical advice or assistance to a governmental body or 
a committee or any subdivision of such upon the specific written request of 
the committee or body; (3) participating in litigation on behalf of others 
when such is the purpose of a grant or agreement; (4) applying or making a 
bid for a contract or grant; and (5) engaging in activities specifically re- 
quired by law. (Proposed paragraph 3 33 b. and c. ) 

In addition to the straight disallowance of advocacy costs, the pro- 
posal provides that a proportional part of the salary of an Individual work- 
ing on a federal contract or grant may not be allocated to that federal con- 
tract or grant if any other part of that person's duties for the private 



317 



CRS-3 

organization is to engage in "political advocacy", or if such person is re- 
quired or "induced" to join or pay dues to an organization engaged in sub- 
stantial political advocacy (other than a labor organization) or is required 
or induced to engage in political advocacy during non-working hours. The pro- 
posal also provides in effect that costs for items which a private organization 
uses in part for carrying out a federal contract of grant, such as costs for 
equipment, printing, and meetings, are not allowable or attributable to that 
grant if such items are used at other times for political advocacy (Proposed 
paragraph B 33 f.) Such restrictions would also apply to the organization's 
office space if more than 5 percent of that space is used at times for political 
advocacy (Proposed paragraph B 33 f (2) (a)). 

OMB AUTHORITY TO ISSUZ RESTRICTIONS 

As discussed in more detail later in this report, the Supreme Court has 
held that Congress has a wide latitude to properly legislate restrictions on the 
use of funds that it appropriates, and may properly legislate certain narrow 
restrictions which nay have an indirect burden on First Amendment rights when 
such provisions have a substantial relationship to the promotion of a suf- 
ficiently compelling governmental interest. In the context of the proposal 
under consideration, however, questions may be raised as to the authority of 
the Office of Management and Budget, as opposed to the Congress, to issue 
broad rules and restrictions which by their nature regulate and effect the 
political advocacy and other First Amendment activities of private, nonprofit 
organizations which receive federal grant or contract money. 

Justice Rehnquist, writing for a unanimous Court in the case of Chrysler 
Corp . v. Brown , 441 U.S. 281 (1978) explained: 



318 



CRS-4 



The legislative power of the United States is vested 
in the Congress, and the exercise oi quasi-legislative 
authority by governmental departments and agencies oust 
be rooted in a grant of such power by the Congress . . . 
441 U.S. at 302, and be reasonably within the con- 
templation of that grant of authority, 441 U.S. at 
306. 

In addition to statutory authority, arguments could be advanced that an 
executive action is based on an inherent authority of the President. How- 
ever, as noted by Justice Jackson concurring in the opinion of Youngstown 
Sheet and Tube v. Sawyer, 343 U.S. 579 (1952), overturning President Truman's 
seizing of private steel mills as unauthorized: "When the President acts 
pursuant to an express or implied authorization of Congress, his authority 
is at its maximum, . . . When the President acts in absence of either a 
congressional grant or denial of authority, he can only rely upon his own 
independent powers, . . . When the President takes measures incompatible 
with the expressed or implied will of Congress, his power is at its lowest 
ebb. ..." 343 U.S. at 635-637. The United States Court of Appeals for 
the District of Columbia Circuit in the case of AFL-CIO v. Kahn , 618 F.2d 
784 (D.C. Cir. 1979) stated that: "The Supreme Court has recently criti- 
cized the interpretations of appropriations measures as implied approvals 
of substantive administration action, see TVA v. Hill , 437 U.S. 153, 190 
S.Ct. 2279, 57 L.Ed. 2d 117 (1978), and much lncertalnty attends any claim 
of "implied" or "Inherent" presidential authority under the Constitution . " 
618 F.2d at 791-792, note 40, emphasis added. 

Thus, the inquiry concerning the authority and validity of an execu- 
tive agency regulation and rule will generally focus on whether there is a 
statutory grant of authority from Congress to that agency delegating to the 
agency Congress' legislative authority over the particular issue in question. 



319 



CRS-5 

As noted by the United States Court of Appeals in the case of Liberty Mutual 

Insurance Conpany v. Friedman , 639 F.2d 164 (4th Clr. 1981), ruling that 

affirnative action requirements of an Executive Order for private insurers 

of governnent contractors were beyond the executive's pouer as delegated fron 
Congress in the general Procurement Act: 

The question before us is not whether Congress 
could require [private] insurance companies provid- 
ing worker's compensation insurance to federal con- 
tractors to comply with the affirmative action re- 
quirements -of Executive Order 11,246, the question 
is "whether or to what extent Congress did grant . . . 
such authority" to the executive branch of govern- 
ment. See NAACP v. Federal Power Comr^sslon , 425 
U.S. 662, 665, 96 S.Ct. 1806, 1809, 48 L.Ed. 2d 284 
(1976). 639 F.2d at 168. 

No specific or express statutory grant of authority is cited within the 
0MB proposal which delegates legislative authority to 0MB to issue regulations 
and restrictions regarding political advocacy and First Amendment activities 
of non-profit organizations who receive federal contracts or grants. Further 
research into federal law has similarly uncovered no express statutory grant 
of legislative authority to the Office of Management and Budget to issue rules 
and regulations concerning advocacy and First Amendment activities by nonprofit 
grantees and contractors of the United States Government or concerning the 
general principle of government non-involvement in private advocacy activities. 

However, the inquiry does not end there. The Court of Appeals in the 
Liberty Mutual case, supra , stated that: "A congressional grant of legislative 
authority need not be specific in order to sustain the validity of regulations 
promulgated pursuant to the grant, but a court must 'reasonably be able to 
conclude that the grant of authority contemplates the regulations issued'." 
639 F.2d at 169, citing Chrysler Corp . v. Brown , supra at 308. Thus, general 



320 



CRS-o 

grants of authority to 0MB aust arguably be examined to determine if such 
statutes contemplated the issuance of the regulations in question, that 
is, to determine if the proper "nexus" exists between the purpose of the 
regulations and the purpose of the statutory ^rant of authority, AFL-CIO 
v. Kahn , supra . If such a "nexus" exists the regulations may meet the 
requirement that executive power "must be exercised consistently with the 
. . . purposes of the statute that delegates that power." Id_. at 793. 

No general statutory authority was cited to by 0MB in the issuance of 
the proposed amendments to Circular A-122, nor in the promulgation of the 
original circular. Several statutory provisions give 0MB authority such as 
to review agency budget requests, prepare the budget, and to study, evaluate 
and develop plans for implementing better management, coordination, and or- 
ganization in the executive branch of government with "a view to efficient 
and economical service" (31 U.S.C. § 18a, see Budget and Accounting Act, 31 
U.S.C. §§ 1-24, note Reorganization Plan No. 2 of 1970); to issue guidelines 
to standardize the language used in government contracts and grants "to 
achieve uniformity in the use by the executive agencies of such instruments" 
(41 U.S.C. § 508, 501(b)) so as "to eliminate ineffectiveness and waste 
resulting from confusion over the definition and understanding of legal 
instruments used to carry out transactions" (S. Rpt. No. 95-449, 95th Con- 
gress, at 2); and to provide "overall direction of procurement policies, 
regulations, procedures and forms" through the establishment of the Office 
of Federal Procurement Policy within 0MB (41 U.S.C § 402(b)) to promote 
and improve "economy, efficiency, and effectiveness in the procurement of 
property and services by the executive agencies" (41 U.S.C. § 402(a), 
§ 401). 



321 



CRS-7 

It is not clear precisely what statutory authority CKIS relies upon 
for these restrictions such that a detailed analysis of the purposes of 
such statute could be provided herein. If general statutory authority such 
as described above is relied upon for the authorization of OMB to issue 
the regulations and restrictions in question then the required "nexus" 
with these statutes night arguably be the purpose of "economy and efficiency" 
in government contracts and grants, similar to the President's authority 
under the Procurement Act. In the case of AFL-CIO v. Kahn , supra , the 
United States Court of Appeals for the District of Columbia examined the 
general authority of the President under the Federal Property and Administra- 
tive Services Act (or Procurement Act) to issue an Executive Order, and 
for the Office of Federal Procurement Policy to implement that Order, to 
require that certain federal contractors be in compliance with the President's 
wage and price guidelines. (See E.O. 12092, 43 F.R. 51375 (1978), 43 F.R. 60772 

y 

(1978)). The Court found that the goals of the Procurement Act "can be 

found in the terms 'economy' and 'efficiency' which appear in the statute 

and dominate the sparse record of the congressional deliberations" (618 F.2d 

at 788). The Court there concluded: 

Because there is a sufficiently close nexus between 
those criteria and the procurement compliance pro- 
gram established by Executive Order 12092, we find 
that program to be authorized by the FPASA. 



1/ Kahn differs from the case in question in two significant ways. 
In the first instance the challenged program in Kahn was initiated by an 
Executive Order issued by the President. Here, no Executive Order has 
been Issued on the subject of political advocacy by non-profit organizations. 
Secondly, and related to the first distinction, the activities regulated in 
the proposal, unlike those in Kahn , relate to "fundamental liberties" such 
as those guaranteed by the First, Fifth, and Fourteenth Amendments (see Hampton 
v. Mow Sun Wong , 426 U.S. 88 (1976)). ' 



322 



CRS-8 



Consequently we conclude that Executive Order 12092 
is in accord with the "economy and efficiency" 
touchstone of the FPASA. By acting to restrain 
procurement costs across the entire Government 
the President was within his Section 205(a) 
powers. 

We wish to emphasize the importance to our 
ruling today of the nexus between the wage and 
price standards and likely savings to the Govern- 
ment. . . . The procurement power must be exer- 
cised consistently with the structures and pur- 
poses of the statute that delegates that power. 
618 F.2d at 792, 793 

The required "nexus" between an executive order and the general author- 
izing statute (the Procurement Act) was found to be absent by the United 
States Court of Appeals for the 4th Circuit in the case of Liberty Mutual 
Insurance Company v. Friedman , supra . The challenged provisions in that 
case concerned affirmative action requirements for private insurance com- 
panies who were providing unemployment compensation insurance coverage to 
government contractors. The court noted that unlike a previous case cited 
there were no findings nor record established that the requirements of the 
executive order would be likely to produce savings to the Federal Government. 
The court found: 

Assuming, without deciding, that the Procurement 
Act does provide constitutional authorization for some 
applications of Executive Order 11,246, we conclude 
that, in any event, the authorization could validly 
extend no further than to those applications satisfy- 
ing the nexus test used in Contractors Association 
and Kahn . Applying that test here, we are satisfied 
that it is not met. 

In applying the test, it is important first to 
note a respect in which the record before the Con - 
tractors Association court differed materially from 
that developed in this case to show the relationship 
between Procurement Act criteria and Executive Order 
application. In Contractors Association , but not in 
the instant case, there were factual findings in the 
record which tended to show a demonstrable relation- 
ship between the two which was not apparent from a 
consideration alone of the Act and the Order. 



323 



CXS-9 



Before the plan challenged in Contractors Associa- 
tion was implemented, a series of public hearings 
was held in the targeted area that resulted in ad- 
ministrative findings which reflected serious under- 
representation of minority employees in six trades. 
The mathematical disparity was found to be caused 
by exclusionary practices of trade unions rather 
than any lack of qualified minority applicants in 
labor pool. 442 t .2d at 164, 173. These findings 
buttressed the Contractors Association court's con- 
clusion that the Executive was acting to protect the 
federal government's financial interest in the state 
projects thereby establishing the sufficiently close 
nexus sought by both the Contractors Association and 
Kahn courts. Cf_. Fullllove v. Klutznick , U.S. 

_, 100 S.Ct. 2758, 2785-90, 65 L.Ed. 2d 902 (1980) 
(Powell, J.,' concurring: importance of legislative 
findings of discrimination to sustain Act of Congress 
mandating affirmative action in federal grants for 
local public works projects). 

By contrast, no such findings were made in the 
case before us. . . . The connection between the 
cost of workers' compensation policies, for which 
employers purchase a single policy to cover em- 
ployees working on both federal and nonfederal con- 
tracts without distinction between the two, and 
any increase in the cost of federal contracts that 
could be attributed to discrimination by these 
insurers is simply too attenuated to allow a re- 
viewing court to find the requisite connection 
between procurement costs and social objectives. 

639 F.2d at 170-171. 
In the 0MB proposals under consideration, there were similarly no 
hearings, findings, nor record of abuses or waste of government funds in 
the area of political advocacy by private organizations receiving federal 
grants which purported to demonstrate the cost saving or increase in effic- 
iency and economy to the government which would result from these restric- 
tions. Since no record is apparent, the connection must therefore be on the 
face of the provisions relative to the stated purpose of the restrictions. 
Cost savings to the government were stated as a purpose or goal of these 
provisions in relation to preventing "diversion" of grant funds to political 
use. (48 F.R. 3349). Certainly, a restriction on the use of federal funds 
or restricting the allocation of costs to federal grants or contacts for 



324 



CRS-10 

non-authorized advocacy activity or any other activity when not in connec- 
tion with the objectives of a federal grant or contract, that is, the di- 
version of grant funds, would arguably appear on its face to have cost 
saving and econony implications. 

However, as to the general stated objective of the proposal, that is, 
to insure that the government is not subsidizing, directly or indirectly, any 
political advocacy, and in particular as to the provisions of the proposal 
which disallow any costs of an organization's facilities and equipment to be 
proportioned to their actual use on a government grant if at other times such 
facilities or equipment of the organization are used for First Amendment advocacy 
activities, the "nexus" to cost savings or economy objectives is more obscure. 
The savings to the government in preventing a private nonprofit organization 
from using its own equipment for advocacy if such equipment had ever been used 
on, and actual costs for such use allocated to a government grant, is not 
readily evident. The purpose of this part of the proposal does not appear 
to have any connection with nor does it appear to have been intended to have 
objectives of cost savings, economy, and efficiency of carrying out or implementing 
a particular government grant or contract. 

Rather, the intent is apparently the achievement of the stated broad 
philosophical goal of government neutrality and non-involvement, through even 
the most indirect government "subsidy", in private advocacy. For example, if 
a grant were let to "promote" better health care facilities for the elderly, 
and the most efficient and economical method of obtaining that objective, from 
a practical and a cost benefit analysis standpoint, were actually to use re- 
sources to advocate more state, local, or federal funding for such facilities 
or to advocate for better regulation of such facilities as nursing homes, private 
clinics and the like, such activity would still be prohibited with grant funds 
under the circular. Thus, the purpose and the effect of the proposal would be 



325 



CRS-ii 

co cease direct and even "indirect subsidies" to advocacy by private organiza- 
tions under a grant or contract regardless of cost or efficiency considerations. 
Furthermore, as iiscussed later with respect to First Amendaent considerations, 
the requireaent of setting up separate advocacy facilities, personnel and 
equipment which the proposal would necessitate if organizations wished to exer- 
cise their First Amendaent advocacy rights and still participate in governaent 
grants and contracts (48 r.R. 3350) aay arguably provide severe diseconomies 
to the federal government because of the cost in the duplication of the 
facilities of its contractors and grantees. 

It should be noted that the issue of whether Congress has delegated 
legislative authority to an agency aay require an even more critical ex- 
amination when, as here, the regulations in question may impact on protected 
First Amendment rights. The cases have found that when "fundamental liberties" 
such as those guaranteed by the First, Fifth and Fourteenth Amendments are 
involved, there is required even greater specificity and guidelines from 
Congress in its delegation to the agency, and any delegating language relied 
upon to affect those rights will be construed narrowly. In such a situation, 
particularly when general governmental policy is being made, the Court may 
look for express congressional delegation or an action pursuant to a specific, 
lawful Executive Order ( Hampton v. How Sun Wong , 426 U.S. 88 (1976), Kent 
v. Dulles, Secretary of State , 357 U.S. 116 (1958)). Without such express 
congressional delegation or action pursuant to an executive order, an agency 
regulation which burdens or restricts "fundamental liberties" such as First 
Amendment rights (particularly as in Hampton , supra and the circular in ques- 
tion where there is no record of hearings or consideration of the impact of 
the provisions, see 426 U.S. at 116) may be found to be a deprivation of 
"liberty" without due process of law ( Hampton , supra at 102-103, Kent v. 
Dulles , supra at 129). 



326 



CRS-12 

The standards required for delegation of legislative authority from the 

Congress when First Amendment issues are at stake were expressed by the Supreme 

Court in Kent v. Dulles , supra : 

Since we start with an exercise by an American citizen 
of an activity included in constitutional protection, 
we will not readily infer that Congress gave the Sec- 
retary of State unbridled discretion to grant or with- 
hold it. . . • [T]he right [involved] is a personal 
right included within the word "liberty" as used in 
the Fifth Amendment. If that "liberty" is to be regu- 
lated, it must be pursuant to the law-making functions 
of the Congress. Youngstown Sheet & Tube Co . v. Sawyer , 
supra . And if that power is delegated, the standards 
oust be adequate to pass scrutiny by the accepted test, 
[citations omitted] Where activities or enjoyment, 
natural and often necessary to the well being of an 
American citizen. . . . are involved, we will construe 
narrowly all delegated powers that curtail or dilute 
them. See Ex parte Endo , 323 U.S. 283, 301-302. Cf. 
Hannegan v. Esquire, Inc . 327 U.S. 146, 156; United 
States v. Rumely , 345 U.S. 41, 46. 

357 U.S. lat 129 
As to the required specificity and guidelines in delegations of authority, 
it should be noted that in the later case of Haig v. Agee , 453 U.S. 280 
(1981), the Supreme Court found that despite a lack of express language dele- 
gating to the Secretary of State authority to "revoke" passports on national 
security grounds, the "broad rule-making authority granted in the [Passport] 
Act," 453 D.S. at 291, the specific authority in the Act for the Secretary 
to "grant and issue passports, and cause passports to be granted and issued, 
and verified in foreign countries" (22 U-S.C. § 211a (1976, Supp. Ill), 
453 U.S. at 290), the "consistent administrative construction" of the Act 
(453 U.S. at 291), and the traditional role of the executive in the areas 
of foreign policy and national security (453 U.S. at 291) all lead to imply 
that the revocation of a passport on national security grounds by the 
Secretary "is 'sufficiently substantial and consistent' to compel the con- 
clusion that Congress has approved it" (435 U.S. at 306). 



327 



CSS- 13 

The proposed regulation on political advocacy by private nonprofit 
organizations issued by the Office of Management and Budget thus may require 
even a more critical scrutiny than those regulations examined unaer Khan and 
Liberty Mutual where merely a rational "r.exus" '-as looked for between the 
executive order and the delegating statute of a general nature. When First 
Amendment activity is sought to be regulated thore may need to be shown an 
express delegation of congressional authority and/or a specific executive 
order by the President under a proper delegation to him. Unlike the Issues 
of delegations of authority looked to in Kahn and Liberty Mutual , the OMB 
provisions deal with First Amendment activity and were apparently not issued 
pursuant to a specific executive order on this subject. In certain circumstances, 
even where First Amendment rights are potentially involved, express delegation 
of congressional authority to perform the exact act in question may not be re- 
quired if the general rulemaking authority of the agency delegated by statute 
is broad enough and the specific grants of authority (along with consistent 
administrative action and congressional recognition of the executive's role 
in such an area) indicate congressional approval of the action under some 
statutory grant of authority. It is not clear whether such statutory 
authority and delegation is present In the situation under examination. 

Since the OMB circular states a general governmental policy and goal 

which has a national impact and application (non-subsidization and government 

2/ 
non-involvement in private advocacy), and which may burden fundamental 

First Amendment rights, an executive agency such as OMB, without express 

congressional delegation of authority to the agency concerning the stated 



2/ Expression of an arguably contrary goal and policy by Congress is 
discussed in section of this report on First Amendnent issues concerning 
sufficiency of the stated governmental interest, pp. 24-29. 



328 



CR.S-14 

goal nor a specific executive order evident, may arguably not be the proper 

"level" for prooulgating or "legislating" such a policy. As stated by the 

Court in Hampton in overruling a Civil Service Commission regulation of 

citizenship requirements for public employment when neither the Congress nor 

the President had established such a policy: 

Indeed we deal with a rule that deprives a discrete 
class of persons of an interest in liberty on a whole- 
sale basis. By reason of the Fifth Amendment, such 
a deprivation must be accompanied by due process. 



When the Federal Government asserts an overriding 
national interest as justification for a [proposed] 
rule. • . , due process requires that there be a 
legitimate basis for presuming that the rule was 
actually intended to serve that interest. If the 
agency which promulgates the rule has direct respon- 
sibility for fostering or protecting that interest, 
it may reasonably be presumed that the asserted 
interest was the actual predicate for the rule. 
That presumption would, of course, be fortified 
by an appropriate statement of reasons identifying 
the relevant interest. Alternatively, if the rule 
were expressly mandated by the Congress or the 
President, we might presume that any interest which 
might rationally be served by the rule did in fact 
give rise to its adoption. 

In this case the petitioners have Identified 
several interests which the Congress or the Presi- 
dent might deem sufficient to justify the exclusion 
of noncitizens from the federal service. 



The difficulty with all of these arguments except 
the last is that they do not identify any interest 
which can reasonably be assumed to have influenced 
the Civil Service Commission, the Postal Service, 
the General Services Administration, or the Depart- 
ment of Health, Education, and Welfare in the admin- 
istration of their respective responsibilities or, 
specifically, in the decision to deny employment to 
the respondents in this litigation. We may assume 
with the petitioners that if the Congress or the 
President had expressly imposed the citizenship re- 
quirement it would be justified by the national 
interest in providing an incentive for aliens to 
become naturalized, or possibly even as providing 
the President with an expendable token for treaty 



329 



CRS-15 



negotiating purposes; but we are not willing to 
presume that the Chairman of the Civil Service Com- 
mission, or any of the other original defendants, 
was deliberately fostering an interest so far 
removed from his normal responsibilities. 

426 U.S. at 102-105 
The question of 0MB authority to issue the restrictions and regulations 
on advocacy activity is most significant when the substantive rules in the 
0MB circular clash with or are apparently contrary to specific congressional 
enactments. This may be the case in situations where Congress has authorized 
programs to be funded" to "advocate" for a certain segment of the population 
such as the poor, the handicapped, consumers or certain minorities, or to 
"promote" certain services or items, such as health care for the aged or 
the poor. (See, e.g., 42 U.S.C. § 6805; 42 U.S.C. § 9501; 42 U.S.C. § 3030d, 
see subsection (a)(10); 42 U.S.C. § 6012; 29 U.S.C. § 796f). 

It should be noted that even when Congress has not expressly used the 
language "advocate" or "promote" it has been ruled by the Comptroller General 
of the United States that an organization may have been authorized by Congress 
by statutory language to engage in such advocacy activities. Thus, the Comp- 
troller General found that the advocacy of the adoption of the Equal Rights 
Amendment by the Coordinating Committee of the National Commission for the 
Observance of International Women's Year was not an unlawful lobbying with 
federal funds by a federal agency and was appropriate activity under the 
statutory language: 

The goals of the Conference, as enumerated in 
section 3(b) of Pub. L. 94-167, also seems to us 
quite consistent with the activities conducted by 
the Conference leaders. See particularly paragraph 
(5) of section 3(b) which directs the Conference to 
"identify the barriers that prevent women from par- 
ticipating fully and equally in all aspects of 
national life, and develop recommendations for aeans 
by which such barriers can he reuoveo . " Without 
expressing any opinion on its merits, it appears to 



330 



CRS-16 

us that a recommendation that the conference support 
the ratification of the ERA is a legitimate alterna- 
tive in no way prohibited by the Statenent of con- 
ference goals. 

Opinion of the Comptroller General of the 
the United States, 3-182398, August 8, 1977, 
at 2. Emphasis in original. 

The 0MB proposal would by its terms exempt only litigation when it is 
the purpose of a grant, and advocacy activity "specifically required by law" 
(proposed Paragraph B33, c (3) and (5)), as opposed to all that activity 
authorized by Congress. Where the 0MB restrictions and regulation of 
advocacy, not based on express delegation of authority from Congress, 
conflicts in this way with the "express or implied will of Congress", 
it may be argued, using Justice Jackson's analysis in the Youngstown 
case that the executive power "is at its lowest ebb" ( Youngstown Sheet 
and Tube , supra at 637), and therefore the express or implied congressional 
authorization to engage in such activities may arguably supercede the cir- 
cular rules based neither on express congressional delegation of legislative 
authority nor a specific executive order ( Youngstown Sheet & Tube , supra ; 
Chrysler Corp . v. Brown , supra ; see specifically 55 Comp. Gen. 911 (1976) 
where the Comptroller General characterized provisions of an 0MB Circular, 
A-102, as "matters of executive branch policy which do not establish 
legal rights and responsibilities.") 

It should also be noted that Congress has enacted legislation and 
appropriations restrictions in the past when it specifically desired that 
grant and/or contract funds should not be used for lobbying or propaganda 
purposes in specific situations. Such restrictions are placed by statute, 
for example, on the Legal Services Corporation to make sure that grants 
or contracts it lets are not used for unauthorized lobbying or political 



331 



CRS-17 

activities (42 U.S.C § 2996(f) (a) (5) ) . Additionally, language included 
In yearly appropriations acts places lobbying restrictions on contract 
and grant money froa three executive departments: Labor, Health and Human 
Services, and the Education Department. This restriction prohibits the 
use of contract or grant money "to pay the salary or expenses of any 
grant or contract recipient or agent acting for such recipient to engage 
in any activity designed to influence legislation or appropriations pending 
before Congress" (P.L. 97-92, Sec. 101(a)(2) incorporating by reference 
H.R. 4560, 97th Congress; see also P.L. 96-536, Sec. 101(a)(4) and P.L. 
96-123, Sec. 101(g) incorporating by reference H.R. 4389, 96th Congress; 
and P.L. 95-480, Sec. 407). Thus, Congress has placed specific and narrow 
restrictions on the use of grant and contract funds when it has deemed 
such restrictions appropriate. This may arguably evidence Congress' de- 
termination on this issue, since no general, overall restriction, nor 
one vith such broad application to all advocacy activities of grantees, 
has been adopted by Congress. 

One final point should be examined as it applies to any implied "con- 
gressional consent" for the issuance of this circular by 0MB under general 
statutory authorizations. It should be noted that the restricted "political 
advocacy" under the proposal would include contact by a nonprofit organiza- 
tion's personnel with a Member of Congress concerning pending, proposed or 
planned legislation if such communications may be interpreted as any attempt 
to influence a governmental decision (Proposed paragraph B33 a (4)). This may 
potentially curtail or limit the information, assistance and communication flow 
between Members of Congress and local nonprofit organizations who receive 
federal grants or contracts, even if the contact or request for assistance 



20-644 O— 83 22 



332 



CRS-1S 

on proposed legislation or any governmental decisionmaking is initiated by 
the Member. The proposal exempts only: "Providing technical aavice or 
assistance to a governmental body or to a committee or other subdivision 
thereof in response to a written request by such body or subdivision" 
(Proposed paragraph B33 c (2), emphasis added). Thus, if a Member wishes 
assistance, advice or ideas on a proposed piece of legislation from com- 
munity action organizations or any community organization from his district, 
if such organization receives federal contracts or grants, such organization 
may possibly be restricted or limited in responding to the Member unless 
the Member has a committee or subcommittee chairman place a request for 
Information from the organization in writing. Such a restriction upon a 
Member's access to information, assistance, suggestions, and expertise from 
organizations and groups within his district, or national groups as well, 
may provide further arguments that such restrictions were not consented 
to, intended, or implied in any general congressional delegation of legis- 
lative authority to the Office of Management and Budget. 

FIRST AMENDMENT ISSUES 

The restrictions contained in the proposal, dealing as they do with 
regulations upon political advocacy by private organizations who receive 
grants or contracts, operate by their nature in the area of the exercise 
of rights guaranteed by the First Amendment to the Constitution, that is, 
freedoms of speech, association and petition. In preliminary comments to 
the amendments to Circular A-122 the Office of Management and Budget stated 
its opinion that these restrictions will not infringe upon the First Amend- 
ment rights of recipient organizations: 



333 



CRS-I9 



Recipients remain free to engage in political advocacy 
on any side of an issue. The proposals aerely insure 
that organizations engage in political advocacy at 
their own expense - not the public's. If an organi- 
zation chooses to exercise its First Amendment rights, 
it is only fair that it keep those political activi- 
ties separate from its work at the expense of the 
public. It should not expect to have its political 
advocacy subsidized, or to be able to put facilities 
purchased in part by tax dollars to political use. 
48 F.R. 3349, January 24, 1983. 

If the proposals did in fact merely deal with a narrow congressional 
restriction on the use of contract or grant funds let from federal agencies 
to private nonprofit organizations, then the legal and constitutional im- 
plication would arguably not be significant. As a general rule and within 
certain constitutional limitations, Congress may place certain restrictions 
and conditions upon the use of funds it appropriates. The Supreme Court has 
noted the following general proposition: "That Congress has wide discretion 
in the matter of prescribing details of expenditures for which it appropriates 
must, of course, be plain." Cincinnati Soap Co . v. United States , 301 U.S. 
308, 321-322 (1937). 

Concerning the proposal in question, however, the restrictions proposed 
are not limitations enacted by Congress in the legislative process, nor are 
they merely narrow restrictions on the use of funds received from the federal 
government. The intent and effect of the regulations have a far broader 
impact than merely disallowing non-authorized advocacy costs of an organiza- 
tion. Instead, the regulations may work in practice to restrict the use by 
private organizations of their own personnel, equipment, and office space for 
First Amendment activity if during some period such personnel or equipment 
were used in carrying out a federal grant or contract and the costs of such 
use were proportionally allocated to that contract or grant. For example, 



334 



CRS-2J 

if a copying machine were used 5 percent of its time for a government grant 
project and 5 percent of its costs were thus allocated to the federal ^rant, 
the practical effect of the proposal would apparently be to restrict the 
organization from using this machine for any First Amendment advocacy activities 
the other 95 percent of its time even if all private, and no federal funds 
supported the costs of such advocacy. (See OMB explanation, questions and 
answers, 48 F.R. 3349, and Proposed paragraph B33 f(2)). 

Such a restriction on the use of an organization's equipment, person- 
nel and facilities would appear to have an impact on the First Amendment 
activities of an affected organization. The regulations may pose a particu- 
lar burden on an organization with limited private resources which could not 
afford to purchase or lease new equipment, rent additional office space, and 
hire new personnel for its non-federal First Amendment advocacy or community 
action activities. If the organization attempted to assign the costs of new 
equipment, facilities and personnel entirely to the federal grant or con- 
tract, and pass the additional costs of duplicating such personnel and equip- 
ment on to the federal government, such additional cost considerations may 
place it at a poor competitive advantage in bidding for, proposing or seeking 
federal grants or contracts. (If such duplication Is necessitated on a wide- 
spread basis by private nonprofit organizations generally, the costs to the 
government for grant or contract programs and studies may be significantly in- 
creased). The cost considerations of setting up duplicate facilities, and 
funding and administrative difficulties imposed on private organizations under 
these proposals may thus arguably present a burden on First Amendment advocacy 
activities. Similarly, the potential choice between seeking federal grant or 
contract money or exercising protected First Amendment activities which the 
proposal may necessitate may act to chill the exercise of such rights. 



335 



CRS-21 

The OMB proposal does not place a direct restriction or pronibition upon 
engaging in First Amendment activities by nonprofit organizations. Thus, it 
nay be argued that any decision to forego political advocacy by such groups 
if they wish to participate in grants and contracts is merely an indirect 
restraint "resulting from self -censorship" ( United States v. Harrlss , 347 
U.S. 612, at 626). However, it arguably may not satisfy the constitutional 
objections to say that if an organization wishes to continue to do advocacy 
activity and cannot afford to duplicate all of its facilities, equipment 
and personnel, then it could just not seek federal grants or contracts; or in 
the alternative if it wishes to have federal contracts or grants, then it 
must merely give up its advocacy activities. As a general proposition, it 
has been noted by the Supreme Court that: "The First Amendment's protection 
against governmental abridgment of free expression cannot properly be made 
to depend on a person's financial ability to engage in public discussion." 
Buckley v. Valeo , 424 U.S. 1, 49 (1976); see also Harper v. Virginia Board 
of Elections , 383 U.S. 633 (1966), re poll tax; Bullock v. Carter , 405 
U.S. 134 (1972) re candidate filing fees. Similarly, the Supreme Court 
has held that the government may not condition the receipt of a government 
benefit upon the abdication of one's First Amendment rights. To do so 
would in effect allow the government to restrict indirectly speech and 
activity which it could not directly prohibit. (Spelser v. Randall , 357 
U.S. 513 (1958); Perry v. Slnderman , 408 U.S. 593 (1972); see also Blitz 
v. Donovan, Secretary of Labor , 538 F. Supp. 1119 (D.D.C. 1982), vacated 
as moot 51 U.S.L.W. 3507, January 10, 1983). In the case of Perry v. 
Slnderman, the Court stated: 



336 



CRS-22 



[The government] aay not deny a benefit to a person 
on a basis that infringes his constitutionally pro- 
tected interests — expecially, his interest in free- 
dom of speech. For if the government could deny a 
benefit to a person because of his constitutionally 
protected speech or associations, his exercise of 
those freedoms would in effect be penalized and 
inhibited. This would allow the government to 
"produce a result which [it] could not command 
directly." Speiser v. Randall , 357 U.S. 513, 526. 
Such interference with constitutional rights is 
impermissible. 

408 U.S. at 597 

Although the provisions of the proposal are not a direct prohibition on 
First Amendment activity, the protection afforded public advocacy extends to 
potential restrictions by the government which operate Indirectly upon persons 
and groups, as well as to those which place a direct prohibition or restric- 
tion on that activity. In the case of NAACP v. Alabama , 357 U.S. 449 (1958), 
the Supreme Court noted the "chilling effect" upon the "freedom to engage in 
association for the advancement of beliefs and ideas" that certain state 
actions may indirectly have: 

Of course, it is immaterial whether the beliefs 
sought to be advanced by association pertain to 
political, economic, religious or cultural matters, 
any State action which may have the effect of cur- 
tailing the freedom to associate is subject to the 
closest scrutiny. 

The fact that [the State] . . . has taken no 
direct action, (citations omitted), to restrict 
the right of petitioner's members to associate 
freely, does not end the Inquiry into the effect 
of the production order. (citations omitted). 
In the domain of these indispensable liberties, 
whether of speech, press, or association, the 
decisions of this Court recognize that abridg- 
ment of such rights, even though unintended, may 
inevitably follow from varied forms of govern- 
mental action, (357 U.S. at 460-461; see Gibson 
v. Florida Legislative Investigation Committee , 
372 U.S. 539, 544 (1963); Bates v. Little Rock. , 
361 U.S. 516 (I960); S helton v. Tucker , 364 U.S. 
479 (I960)). 



337 



CRS-23 

Public advocacy, participation in and discussion of governmental affairs 

and public issues, and the right to associate for such purposes have been 

found by the Supreme Court to "operate in the area of the nost fundamental 

First Amendment activities". 3uckley v. Valeo , 4.24 U.S. 1, 14 (1976). The 

Supreme Court in Buckley noted the following: 

Discussion of public issues . . . are integral to 
the operation of the system of government established 
by our Constitution. The First Amendment affords 
the broadest protection to such political expres- 
sion in order "to assure [the] unfettered inter- 
change of ideas for the bringing about of political 
and social changes desired by the people." Roth v. 
United States , 354 U.S. 476, 484 (1957). Although 
First Amendment protections are not confined to "the 
exposition of ideas," Winters v. New York , 333 U.S. 
507, 510 (1948), "there is practically universal 
agreement that a major purpose of th[e] Amendment 
was to protect the free discussion of governmental 
affairs. . . ." Mills v. Alabama , 384 U.S. 214, 
218 (1966). 

424 U.S. at 14 

The right to political advocacy, although fundamental, is not necessarily 
absolute. The Supreme Court has found, however, that a governmental burden 
upon that right must survive "exacting" and "critical scrutiny" and thus 
could be sustained only if the state "demonstrates a sufficiently important 
interest" ( Buckley , supra at 25), and that such restriction "be closely drawn 
to avoid unnecessary abridgment" of the fundamental right of political ad- 
vocacy. ( First National Bank v. Bellotti , 435 U.S. 765, 786 (1978); Buckley 
v. Valeo , supra ; KAACP v. Button , 371 U.S. 415, 438 (1963); Shelton v. Tucker , 
364 U.S. 479, 488 (I960)). 



338 



CRS-24 

Governmental Interest 

As to the sufficiency of the governmental interest in the 0M3 proposal 
in comparison to the potential burden on First Amendment rights, it is diffi- 
cult to assess the importance of preventing the precise abuses and harm at 
which the proposals are aimed, since unlike the established procedures in 
which Congress legislates such restrictions, there are no hearings, reports, 
nor findings connected with this executive fiat. Thus, there is no record 
established of particular abuses or harm to the government or the public 
at which the prohibitions are directed. 

The explanatory material preceding the proposed amendments noces that 
the general goal of the circular is to prevent the federal government from 
subsidizing directly or indirectly the political advocacy activities of 
private organizations and to cease government involvement in the private 
advocacy of ideas. Such a general interest stated by Congress pursuant to 
findings in the legislative process, or even expressed in an Executive Order 
pursuant to the President's lawful authority, may arguably provide a court with 
a substantial governmental interest against which to balance the potential bur- 
den on First Amendment activities. However, the circumstances under considera- 
tion may mitigate against the compelling nature of the governmental interest 
asserted when such restrictions are issued by an agency of the government 
without hearings, record or specific findings on the issue, and not pursuant 
to express congressional findings and delegation of authority, nor pursuant to 
a specific Executive Order (see Hampton v. Mow Sun Wong , 426 U.S. 88, 103-105, 
115-117 (1976)). The Court in Hampton v. Mow Sun Wong , supra , overturned a 
Civil Service Commission regulation regarding citizenship requirements for 
federal employment which was not based on an express congressional finding 



339 



CRS-15 

and delegation of authority, nor on an Executive Order. As to the sufficiency 
of the governmental interests asserted to overcone burdens on "fundamental 
liberties" guaranteed by the Fifth and Fourteenth Amendments, the Court 



stated: 



We may assume with the petitioners that if the 
Congress or the President had expressly imposed 
the citizenship requirement, it would be justified 
by the national interest in providing an incentive 
for aliens to become naturalized or possibly even 
as providing the President with an expendable token 
for treaty negotiating purposes; but we are not 
willing to presume that the Chairman of the Civil 
Service Commission, or any of the other original 
defendants, was deliberately fostering an interest 
so far removed from his normal responsibilities. 
Consequently, before evaluating the sufficiency of 
the asserted justification for the rule, it is im- 
portant to know whether we are reviewing a policy 
decision made by Congress and the President or a 
question of personnel administration determined 
by the Civil Service Commission. 



The Civil Service Commission, like other adminis- 
trative agencies, has an obligation to perform 
Its responsibilities with some degree of expertise 
and to make known the reasons for its important 
decisions. There is nothing In the record before 
us, or in matter of which we may properly take 
judicial notice, to indicate that the Commission 
actually made any considered evaluation of the 
relative desirability of a simple exclusionary 
rule on the one hand, or the value to the service 
of enlarging the pool of eligible employees on 
the other. 



In sum, assuming without deciding that the 
national interests identified by the petitioners 
would adequately support an explicit determina- 
tion by Congress or the President to exclude all 
noncitizens from the federal service, we conclude 
that those interests cannot provide an acceptable 
rationalization for such a determination by the 
Civil Service Commission. 

426 U.S. at 105, 115, 116 



340 



CRS-25 

The sufficiency of the governmental interest asserted by 0MB must also 
be evaluated in light of arguably contrary congressional and judicial deter- 
minations of governnental interests in this area. Thus, both the Congress 
and the Supreme Court have recognized an important governmental interest in 
encouraging, fostering, and even subsidizing the advocacy of ideas in the 
private sector. The Supreme Court has noted as a general concept our 
"profound national commitment to the principle that debate on public issues 
should be uninhibited, robust, and wide open" ( New York. Times v. Sullivan , 
376 U.S. 254, 270 (1964)), and has specifically upheld legislation to "use 
public money to facilitate and enlarge public discussion". . . . ( Buckley 
v. Valeo , supra at 92-93.) The legislation adopted by Congress which was 
upheld by the Court in that case provided for public tax revenues to be 
distributed to private political campaigns to directly subsidize the polit- 
ical advocacy of presidential candidates. (See P.L. 92-178, § 801; P.L. 
93-53, § 6; P.L. 93-443, §§ 403-408; 26 U.S.C. §§ 6096, 90U1-9012, 9031-9042). 
Congress has further provided assistance and subsidies to private nonprofit 
organizations which may advocate in the general forms of exemption from 
federal taxation on the income and receipts of such organizations (see gen- 
erally 26 U.S.C. § 501(c)); has provided incentives and indirect subsidies 
by way of tax deductions for individuals who contribute to certain nonprofit 
organizations which are allowed to engage in a designated amount of lobbying 
and "grassroots" lobbying activities (see 26 U.S.C. §§ 170, 501(c)(3), 501(h)), 
and has included such advocacy groups in the latest Federal United Way Cam- 
paign where federal employees, in federal buildings and on government time, 
participate in fund raising activities on behalf of such private nonprofit 
advocacy groups (see Executive Order No. 12353, March 23, 1982, and NAACP 
Legal Defense and Education Fund, Inc . v. Campbel l, 504 F. Supp. 1365 (D.D.C. 
1981). 



341 



CRS-27 

The OMB proposal states the general principle that the government should 
not be involved in the advocacy of varying and competing private ideas by 
private parties, and that in using tax monies to directly or indirectly en- 
courage or subsidize advocacy would force taxpayers to support ideas with 
which they may disagree. This argument, however, as a constitutional ob- 
jection to government assistance to advocacy in the private sector has 
specifically been rejected by the Supreme Court in the case or Buckley v. 
Valeo , supra , in upholding the constitutionality of the feaeral financing 
of presidential political campaigns. As to the argument- of preventing 
government "involvement" in private advocacy of ideas, which was argued 
something akin to the noninvolvement of the government In religion re- 
quired by the establishment clause, the Court noted that there is no such 
noninvolvement or "neutrality" requirement as to First Amendment advocacy 
rights, other than religion: 

Appellants next argue that "by analogy" to the 
Religion Clauses of the First Amendment public fi- 
nancing of election campaigns, however meritorious, 
violates the First Amendment. We have, of course, 
held that the Religion Clauses — "Congress shall 
make no law respecting an establishment of religion, 
or prohibiting the free exercise thereof" — require 
Congress, and the States through the Fourteenth 
Amendment, to remain neutral in matters of religion. 
E.g . , Abington School Dlst . v. Schempp , 374 U.S. 
203, 222-226 (1963). The government may not aid 
one religion to the detriment of others or impose 
a burden on one religion that is not imposed on 
others, and may not even aid all religions. E.g . , 
Everson v. Board of Education , 330 U.S. 1, 15-16 
(1947). See Kurland, Of Church and State and the 
Supreme Court, 29 U. Chi. L. Rev. 1, 96 (1961). 
But the analogy is patently inapplicable to our 
issue here. Although "Congress shall make no law 
. . . abridging the freedom of speech, or of the 
press," Subtitle H is a congressional effort, not 
to abridge, restrict, or censor speech, but rather 
to use public money to facilitate and enlarge pub- 
lic discussion and participation in the electoral 



342 



COS-23 

process, goals vital Co a self-governing people. 
Thus, Subtitle H furthers, not abriages, pertinent 
First Amendment values. 

424 U.S. at 92-93 

A lower federal court had earlier ruled in a different factual situation that 

the First Amendment did not prohibit the jovernnent from expending public 

II 
monies on the advocacy of controversial issues. Citing to a United States 

Court of Appeals case, Joyner v. Whiting , 477 F.2d 456, 461 (4th Cir. 1973) 

the District Court in the case of Arrlngton v. Taylor , 380 F. Supp. 1348, 

1364 (D.N.C. 1974), stated: 

More fundamentally, the notion that it is un- 
constitutional and somehow violative of the 
rights of individual members of society for a 
government to advocate a particular position is 
erroneous. . • . What is condemned by the free 
speech guarantee of the First Amendment Is not 
advocacy by the government, but rather conduct 
which limits similar rights guaranteed to 
individual members of society. 

A further objective of the 0MB circular appears to be preventing a "spoils 
system" in government whereby organizations politically friendly to the current 
administration would receive the bulk of the contracts and grants. The 0MB cir- 
cular cites to the case of El rod v. Burns , 427 U.S. 347 (1976), as justification 
for the sufficiency of this Interest. It' should be noted initially that the 
factual circumstances in Elrod v. Burns , supra , and the later related case of 
Brantl v. Finkel, 445 U.S. 507 (1980), do not relate to advocacy by private 
organizations receiving government contracts or grants, but rather deal with 
the infringement of First Amendment rights of public employees subject to 
patronage dismissals when they do not possess the "proper" (vis-a-vis the 



2/ See also General Accounting Office Opinion of September 10, 1976, 
B-130961-O.M. 



343 



CRS-29 

incoming administration) political party credentials. The advocacy restric- 
tions in the 0>IB proposal are not limited to partisan political party activity 
or affiliation but extend even to nonpartisan First Amendment activity and the 
exposition of ideas and opinions on public issues. Most significantly, unlike 
the holding in Elrod v. Burns and 3ranti v. Flnkei , the object of the 0MB pro- 
posal is not to preserve government benefits regardless of the political or 
philosophic propensity of the recipient, but rather the impact may arguably be 
to cease funding those who exercise such rights of speech, expression and 
petition. 

As discussed above, there are no findings or record provided by 0MB 
of abuses regarding a "spoils system" or favoritism in contracts and grants 
which is sought to be rectified by these restrictions. However, if such 
abuses exist, stroTrg arguments could be made that the prevention of such 
favoritism is a legitimate and important governmental interest. The major 
issue concerning the OMB proposal in relation to this stated interest, 
in addition to the issue discussed above as to the level of such policy 
making, may be the second part of the required First Amendment test, that 
is, the overbreadth doctrine. 

Overbreadth 

Even if a sufficient governmental interest were found within OMB's 
capacity to justify the burden on First Amendment rights, Supreme Court 
cases have shown that a further constitutional requirement is that re- 
strictions in the area of First Amendment activities be narrow and not 
overbroad. The overbreadth doctrine requires that such regulations be 
drafted "precisely" and narrowly. As stated by the Supreme Court in 
United States v. Robel , 289 U.S. 25C, 265 (1967): "It has become axiom- 
atic that precision of regulation must be the touchstone in an area so 



344 



CRS-30 

closely couching our Dost precious freedoms". Thus, Che Courc will serine 

down provisions which broadly sweep wichin Cheir rescriccions boch procecced 

and unprocecced speech and accivicy ( N'AACP v. Buccon , supra ; ApCheker v. 

Secrecary of Scace , 378 U.S. 500, 512-513 (1964); Shelcon v. Tucker , supra ; 

Schaumburg v. Cicizens tor a beccer Environpenc , 44 U.S. 620, 637-639; and 

where "less incrusive" ( Schaumburg , supra ) measures, Chac is, chose which 

lease incerfere vich rights of expression, are available. The Courc in 

Shelcon v. Tucker scaced specifically: 

In a series of decisions this Courc has held chac, 
even chough che government purpose be legicimace and 
subscancial, Chac Che purpose cannot be pursued by 
means Chac broadly stifle fundamental personal lib- 
erties when the end can be more narrowly achieved. 
The breadth of legislative abridgment must be viewed 
in light of less drastic means for achieving the same 
purpose. 

364 U.S. at 488 

Finally, In relation to the overbreadch doccrine, che Courc has insisced that 

there be a "substantial relationship" ( Schaumburg , supra at 638) between 

the regulation on expression and the purported governmental interest asserted 

as its justification (See Bates v. City of Little Rock , 361 U.S. 516, 525 

(1960); NAACP v. Alabama , supra at 464; Buckley v. Valeo , supra at 25). In 

a practical sense, this may require the regulations to effectively deal with 

the proported problem and reason for cheir enaccment. 

If "fairness" in contracting and providing grants were the objective of 

the 0MB circular, then signif icancly narrower guidelines, less obcrusive on 

Firsc Amendmenc righes, mighc arguably be promulgaced Co enforce requiremencs 

Chac concracts and grants be let to the most qualified applicant in cerms 

mosc favorable Co Che governmenc, wlchouC regard Co policical bias. Barring 

all Firsc Amendmenc accivicies of all nonprofic organizacions wich cheir own 



345 



CRS-31 

facilities and equipment if they were used at any time on a federal contract 
or grant and the costs of such use were allocated to that contract or grant, 
say arguably not be the "least restrictive means" of accomplishing the goal 
of "fairness" in contracting and grant letting. The regulations within the 
circular provide no rules or guidelines to insure "fairness" or equity in 
the grants or contracts that are let unaer the existent standards. Thus, 
larger nonprofit organizations with enough private resources to establish 
a separate advocacy branch, which are politically favorable to an adminis- 
tration or an agency, would not be prevented from receiving the bulk of 
the money and sore favorable treatment under these provisions. 

A further overbreadth issue may arguably arise in the context of the 
objective of preventing private organizations from being "subsidized" with 
government funds. If this were the objective, then regulations narrowly 
disallowing costs of unauthorized advocacy activity (that is where Congress 
has not authorized that funds be used to promote or advocate for a certain 
cause or objective) would arguably reach that objective. As now proposed, 
the regulations may work in a practical sense, by way of disallowing costs, 
to restrict groups from much advocacy with their own equipment and facilities 
even when the costs of that proportional use were, under proper cost accounting 
procedures, totally borne by private money. Thus, the regulations, since 
speech not funded by the federal government may be restricted, might arguably 
sweep within its prohibitions protected speech and activity, unrelated to 
the stated objectives of the circular. 

Vagueness 

A principle of First Amendment regulation somewhat akin to the over- 
breadth doctrine is the "vagueness" doctrine which requires specificity in 
First Amendment restrictions so that protected conduct will not be deterred 



346 



CRS-32 

by questions of the applicability of vague and unclear prohibitions. (See 
Smith v. Goguen , 415 U.S. 566 (1974); Hynes v. Mayor of Oradell , 425 U.S. 
610 (1976); Young v. American Mini Theatres , 427 U.S. 50 (1976)). Thus, 
the definitions employed by 0MB for "political advocacy" may need to be 
examined for their potential impact on first Amendment activity. "Political 
advocacy" is defined broadly to cover not only partisan political activities, 
but also to nonpartisan discussions and advocacy on public issues, and to 
such things as nonpartisan community action and legal representation of 
another. The restriction might also reach and encompass consultations and 
information sharing with local community leaders to share common concerns, 
and with other nonprofit groups that do advocate. Many questions may thus 
arise concerning a group's liaison activities with other nonprofit groups, 
with other units or subgroups of its own organization engaged in advocacy, 
and with community governmental units seeking solutions to local and regional 
issues, as well as questions about attending meetings and forums where possible 
solutions to problems are discussed, as to whether such activity and community 
involvement would constitute restricted "advocacy". In addition to the 
practical effect of adversely affecting the effectiveness of local groups who 
may be cut off from community involvement, the restrictions imposed by the 
financial requirements, and the breadth of the restrictions and the concurrent 
questions that they raise may arguably chill protected First Amendment activi- 
ties of covered private, nonprofit organizations participating in federal grants 
or contracts. If this were the case, narrowing and explanatory guidelines may 
be required. 



347 



CRS-33 



CONCLUSION 

The exercise of legislative power is vested in the Congress, and legis- 
lative functions may be exercised by an executive agency only insofar as the 
authority to do so is delegated to the agency by Congress. Generally, if 
no express delegation to act on a particular subject is apparent, the courts 
will look to determine if the purposes of an executive rule, regulation or 
other promulgation may rationally be within or have a "nexus" to the purpose 
of a general statutory delegation of authority to the agency. 

There is no clear indication of an express statutory delegation of 
authority from Congress to the Office of Management and Budget to issue 
rules and regulations regarding political advocacy by nonprofit organizations 
which receive federal grants, nor to establish rules to effectuate a general 
governmental policy of non-involvement and non-subsidization of advocacy in 
the private sector. Insofar as the cost accounting and allocation rules of 
the OMB proposal prohibit a grantee from allocating to a federal grant the 
costs of unauthorized advocacy activities, or any advocacy activities un- 
related to the purposes of a grant, such prohibitions on diversion of grant 
funds may arguably come within some general delegation of statutory authority 
to OMB under a statutory provision which has grant management, or cost and 
efficiency purposes, depending on which statute OMB cites to as providing 
such general statutory authority. 

However, as to the provisions of the proposal which work, to restrict 
an organization's use of its own equipment, facilities, and personnel for 
First Amendment activities if such items were ever used on a grant and 
the proportional costs allocated to that grant, the connection with any 
cost savings or economy to the government may be more obscure. The dupli- 
cation of facilities by contractor or grantee organizations which these 



20-644 0—83 23 



348 



CRS-34 

restrictions may require, may in fact provide diseconomies to the government. 
The purpose of such a rule which would work in practice to prohibit the use 
of such items on First Amendment advocacy activities at any time is apparently 
related to the general goal stated in the OMB proposal to prevent even in- 
direct subsidization of an organization which advocates and to prevent govern- 
ment involvement in the private advocacy of ideas, regardless of cost or 
efficiency motives. 

Since the restrictions in the OMB policy may effect the exercise of 
First Amendment rights, an even more specific grant of statutory authority, 
and more specific guidelines from Congress might be required than in cases 
such as AFL-CIO v. Kahn , supra and Liberty Mutual , supra , where merely a 
rational "nexus" between the policy stated in an executive order and the 
purpose of a general statutory delegation was needed to be shown. It is 
also significant that the actions challenged under both Kahn and Liberty 
Mutual were pursuant to a specific executive order issued by the President, 
while in the case of the OMB regulations no executive order has been issued 
on this subject. The issuance of regulations on fundamental liberties 
without express delegation of legislative authority or under a lawful 
executive order, particularly where there were no hearings nor any record 
on the effects of the provisions and issues in question, may in some 
instances arguably deprive persons of a fundamental liberty without due 
process of law. 

Considering the broad policy nature of the proposed restrictions, the 
stated purpose of those restrictions, their affect on fundamental liberties, 
and the absence of express congressional delegation of authority or a 
specific executive order on this subject, questions may be raised under 



349 



CRS-35 

judicial precedents as to whether an agency such as OMB, rather than the 
Congress or the President, is the proper "level" tor promulgating such a 
policy decision. 

A significant issue related to OMB's authority to issue these restric- 
tions arises when the substantive prohibitions in the OMB proposal are 
contrary to or clash with express or implied authorization from the Congress 
for program recipients to advocate for certain persons or groups or promote 
certain items. When this is the case it would appear that the express or 
implied will of Congress, evident in a statutory grant or legislative 
history, would arguably take precedence over an OMB policy issued without 
express congressional delegation of authority. 

The question of OMB authority to promulgate broad governmental policy 
in this area reflects also on the First Amendment issues. The impact on 
First Amendment rights which the proposal may have in practice may arguably 
subject such regulations to the traditional test of governmental burdens on 
First Amendment rights, that is, that the government must demonstrate a suf- 
ficiently important or compelling governmental interest which is promoted 
by a narrow and precise regulation on First Amendment activities. 

The general governmental interest stated by the proposal, government 
non-subsidization of and non-involvement in private advocacy, if stated by 
the Congress or the President may arguably provide a sufficient governmental 
interest to justify the burden of First Amendment rights imposed by the 
requirements of the proposal. However, the sufficiency of the interest 
asserted may be diminished by the fact that neither the Congress nor 
the President has expressly stated this interest in relation to the regu- 
lations, and the fact that the express authority of OMB to "legislate" in 



350 



CRS-36 

this area and assert this general interest is not apparent on the face of 
any specific legislation. The sufficiency of the interest of the government 
as asserted by 0MB must also be measured against apparently contrary asser- 
tions by the Congress in numerous statutory schemes where, for example, public 
tax monies are made available to private parties for their political advocacy, 
and where Congress has established tax provisions to exempt nonprofit 
groups which advocate from federal income taxation, and to subsidize contribu- 
tions to certain nonprofit groups which are allowed to lobby to a particular 
degree. Further, the supreme Court has found that government neutrality and 
non-involvement in private advocacy is not constitutionally required and has 
upheld the financing of private political campaigns with tax revenues as a 
proper "use [of] public monies to facilitate and enlarge public discussion 
and participation in the electoral process, goals vital to a self-governing 
people" (424 U.S. at 93). 

The interest of fairness in government contracting and the letting of 
grants may be an important governmental interest which may arguably be 
asserted by 0MB. The question of overbreadth, however, is particularly 
relevant to this stated interest, since there may arguably be less re- 
strictive means of accomplishing this objective than barring all advocacy 
with any of an organization's equipment or supplies which had previously 
been used on, and costs proportionally allocated to, a federal grant or 
contract. Rules and regulations requiring the selection of the most quali- 
fied bidder at terms most beneficial to the government without regard to 
the political bias of the organization may arguably supply a less restric- 
tive and more effective means of accomplishing this goal. It should also be 
noted that there are actually no rules and guidelines in this particular 



351 



CRS-37 

OMB proposal to prevent favoritism or a "spoils system" at which OMB claims 
the circular is aimed. Thus, grants and contracts could still be let to 
favored organizations which have enough private funding to be financially 
able to set up separate advocacy facilities. Finally, the fact that the 
proposal may burden the use by an organization of its own facilities for 
First Amendment activities even when that particular use is proportionally 
paid for entirely out of private funds, may arguably not have a sufficient 
enough connection to the stated goal of non-subsidization of advocacy and 
arguably be an overbroad restriction sweeping within its scope protected 
First Amendment activities. 

Thus, questions may be raised under a First Amendment analysis as to 
both the sufficiency of the governmental Interest asserted by OMB in the 
restrictions, and as to the "overbreadth" of the application of the re- 
strictions. 




Legislative Attorney 
American Law Division 



352 



*" ft ^>^ • *- Congressional Research Service 

: ^ii^;. - ? The Library of Congress 

< » a ■> 

Washington, D.C. 20540 



USE OF FEDERAL CONTRACT OR GRANT MONEY FOR LOBBYING PURPOSES 



Jack Haskell 

Legislative Attorney 

American Law Division 

October 1, 1982 



353 



USE OF FEDERAL CONTRACT OR GRANT MONEY FOR LOBBYING PURPOSES 

This report discusses the propriety of using federal contract or 
grant money by private recipients for the purposes of lobbying the United 
States Congress. 

Initially it should be noted that there is within federal law a 
criminal prohibition, as well as yearly appropriations restrictions, >■ 
against the use of federally appropriated funds for the purpose of 

y 

lobbying the Congress. There is, however, no clear indication from 
the legislative history of the criminal statutory provision, nor the 
judicial or administrative interpretations of either provision, that 
such prohibitions would reach private individuals using monies under 
their control which have been received by way of federal contracts or 
grants. These general prohibitions on lobbying with appropriated funds 
apparently go to "executive branch" or "administrative lobbying" by the 
federal agencies and their officers and employees who use congressional 
appropriations to their agencies for the prohibited purposes, rather than 
attaching to private parties who do not receive appropriations from 
Congress but who receive contract or grant funds from United States 
departments and agencies. Indeed, the criminal prohibition on lobbying 
with appropriated funds, at 18 U.S.C. § 1913, by the specific language of 



1/ See 18 U.S.C. § 1913; and Treasury Postal Service and General 
Governmental Appropriations Act, e.g., P.L. 97-51, P.L. 97-85, P.L. 97-92 
and P.L. 97-161 continuing appropriations as established in H.R. 4121, 
97th Cong., see Sec 608(a); P.L. 96-369 and P.L. 96-536 continuing 
appropriations as established in H.R. 7583, 96th Cong., see Sec. 607(a); 
P.L. 96-74, Sec. 607(a); P.L. 95-429, Sec 607(a). 



354 



CRS-2 

the provision, applies its penalities only to an "officer or employee 
of the United States or of any department or agency thereof". 

There appear to be no specific requirements under federal law 
that instruct all agencies as a matter of course to seek prior 
contractual assurances that funds they make available to private 
parties by way of procurement or services contracts or grants will 
not be used by such private parties for lobbying or propaganda 
purposes. However, there may be either statutory or appropriations 
language, or specific "strings" attached to a particular contract or^ 
grant, which could place restrictions on lobbying upon those 
funds made available to private contractors or grantees through 

particular federal programs or from certain federal departments 

If 

or agencies. Additionally, in some circumstances, such, as where 

an agency is involved in funding a continuing joint government-private 

industry project or other activity where continued government approval, 

participation or endorsement is indicated, and the agency is aware of 

propaganda activities by the private parties with contract or grant 

funds, an agency may arguably have some responsibility concerning its 

continued funding of those activities to prevent a violation of the 

3/ 
general anti-lobby ing provisions from being imputed to the agency. 



2/ See 42 U.S.C. § 2996f(a)(5) re grantees and contractors of 
the Legal Services Corporation; and Labor, Health and Human Services 
and Education Departments Appropriations acts, e.g., P.L. 97-92, 
Sec. 101(a)(2) incorporating by reference H.R. 4560, 97th Cong. 

3/ See Report of the Comptroller General of the United States: 

"Problems With Publications Related to the Clinch River Breeder Reactor 

Project", B-130961, January 6, 19 78; Comptroller General Opinion, 

B-128938, July 12, 1976. 



355 



CRS-3 



Specific Restrictions on Grantees or Contractors 

As noted above, there may be specific statutory or appropriations 

language against the use of particular contract or grant money for 

lobbying or advocacy purposes. In such a case the affirmative 

responsibility might rest with the federal agency or bureau letting 

the contract or grant. For example, in the case of the funds made 

available by contract or grant by the Legal Services Corporation, 

a specific statutory provision requires that the Corporation insure 

that such funds are not used for lobbying purposes by the recipient 

organization (42 U.S.C. § 2996f (a) (5) ) : 

§2996f. Grants and contracts 
(a) Requisites. 

With respect to grants or contracts in connection 
with the provision of legal assistance to eligible 
clients under this subchapter, the Corporation shall — 

(5) insure that no funds made available to 
recipients by the Corporation shall be used at any 
time, directly or indirectly, to influence the issuance, 
amendment, or revocation of any executive order or 
similar promulgation of any Federal, State, or local 
agency, or to undertake to influence the passage or 
defeat of any legislation by the Congress of the 
United States, or by any State or local legislative 
bodies .... 

Specific language included in yearly appropriations acts places 

lobbying restrictions on contract and grant money from three executive 

departments: Labor, Health and Human Services, and the Education Department. 

This restriction prohibits the use of contract or grant money "to pay 

the salary or expenses of any grant or contract recipient or agent 

acting for such recipient to engage in any activity designed to 

influence legislation or appropriations pending before Congress" 

(P.L. 97-92, Sec. 101(a)(2) incorporating by reference H.R. 4560, 



356 



CRS-4 



97th Congress; see also P.L. 96-536, Sec 101(a)(4) and P.L. 96-123, 
Sec. 101(g) incorporating by reference ll-R. 4389, 96th Cong; 
and P.L. 95-480, Sec 407). This language is somewhat narrower 
than the Legal Services Corporation prohibition, as this appropriations 
restriction goes only to the use of contract or grant funds to lobby 
the United States Congress, while the Legal Services Corporation 
statute goes to the use cf funds to lobby state or local legislatures, 
or to lobby on executive orders or similar promulgations of any federal, 
state or local agency, as well as on legislation before Congress. 

The Comptroller General of the United States has interpreted the 
provision of the Labor/HHS Appropriations Act to restrict contract 
and grant recipients from expending funds received from a federal 
contract or grant from one of the designated departments for "grass roots" 
lobbying activities, that is, for "an indirect attempt to influence 
pending legislation by urging members of the public to contact 
legislators to express support of, or opposition to the legislation 
or to request them to vote in a particular manner." (Decision of the 
Comptroller General, B-202787, May 1, 1981, at p. 1, citing to 
definitions of grass roots lobbying in 56 Comp. Gen. 889 (1977) and 
59 Comp. Gen. 115 (1979)). The Comptroller General in that decision 
instructed an agency of the federal government to investigate a mass 
mailing of material to the general public by a Department of HHS 
grantee which urged readers to write their congressman for support of 
a program, to determine "if any Federal funds were utilized either 



357 



CRS-5 



directly, for such items as postage, stationary or employee salaries, 
or indirectly, for such items as office machinery use, utilities etc." 
in such mailings (Id_. at 3). 

Although there are specific restrictions on contract or grant 
recipients from certain agencies or departments, such as the ones 
noted above, no statutory or appropriations provision of general 
applicability to all federal contract or grant money has been found. 

General Restrictions on Appropriated Funds 

There is, as discussed briefly above, a general, overall restriction 
on the use of "appropriated" funds for the purposes of lobbying the Congress. 
The language of the criminal statutory provision, at 18 U.S.C. § 1913, 
states broadly that "No part of the money appropriated by any enactment 
of Congress shall ... be used directly or indirectly to pay for any 
personal service, advertisement, telegram, telephone, letter, printed 
or written matter or other device intended or designed to influence" 
Members of Congress on legislation. However, the penalties provision 
of this statute clearly demonstrates that the penalty for such conduct 
applies only to "an officer or employee of the United States or of 
any department or agency thereof". Thus, the penalties under this 
statute for the use of federal funds for lobbying would not follow 
such funds to apply to a private contractor or grantee. The statute 
states as follows: 



4/ A federal department and a private organization receiving funds from that 
department were named as defendants in a civil suit brought to enjoin the expen- 
diture of federal funds for lobbying under the criminal provision at 18 U.S.C. 
sec. 1913. National Association for Community Development v. Hodgson , 356 F. Supp. 
1399 (D.D.C. 1973). The court there held that despite the language of the criminal 
statute making it applicable only to "an officer or employee of the United States", 
the private organization may be named as a defendant in a civil suit brought under 
the criminal provision. 356 F. Supp. at 1402-14Q4. That case, however, was expressly 
overruled by the district court in its decision of NTEU v. Campbell , 482 F. Supp. 1122 
(D.D.C. 1980), affirmed 654 F. 2d 784, 789-790 (D.C. Cir. 1981). See also (cont'd) 



358 



CRS-6 



§ 1913. Lobbying with appropriated moneys 

No part of the money appropriated by any enactment of Congress 
shall, in the absence of express authorization by Congress, be used 
directly or indirectly to pay for any personal service, advertisement, 
telegram, telephone, letter, printed or written matter, or other 
device, intended or designed to influence in any manner a Member of 
Congress, to favor or oppose, by vote or otherwise, any legislation 
or appropriation by Congress, whether before or after the introduc- 
tion of any bill or resolution proposing such legislation or appro- 
priation; but this shall not prevent officers or employees of the 
United States or of its departments or agencies from communicating 
to Members of Congress on the request of any Member or to Con- 
gress, through the proper official channels, requests for legislation 
or appropriations which they deem necessary for the efficient con- 
duct of the public business. - 

Whoever, being an officer or employee of the United States or of 
any department or agency thereof, violates or attempts to violate 
this section, shall be fined not more than S500 or imprisoned not 
more than one year, or both; and after notice and hearing by the 
superior officer vested with the power of removing him, shall be re- 
moved from office or employment. 
June 25, 1948, c. 645, 62 Stat. 792. 



The legislative history and the subsequent interpretations of 
the statutory provision at 18 U.S.C. § 1913 demonstrate that the 
prohibition was intended to restrict federal officials from using 
appropriations to engage in a publicity campaign directed at the 
general public to stir the public to contact their Congressman 
on a particular issue. The intent of the statute was stated by 
the original sponsor of the provision, Congressman James W. Good 
of Iowa, on the floor of the House on May 29, 1919: 



4/ (cont'd) American Conservative Union v. Carter , No. 79-2495, slip 
op. at 4-5 (D.D.C. December 14, 1979). 



359 



CRS-7 



It is new legislation, but it will prohibit a practice 
that has been indulged in so often, without regard to 
what administration is in power — the practice of a 
bureau chief or the head of a department writing 
letters throughout the country, sending telegrams 
throughout the country, for this organization for. 
this man, for that company to write his Congressman, 
to wire his Congressman, in behalf of this or that 
legislation. The gentleman from Kentucky, Mr. 
Sherley, former chairman of this committee, during 
the closing days of the last Congress was greatly 
worried because he had on his desk, thousands upon 
thousands of telegrams that had been started right 
here in Washington by some official wiring out for 
people to wire Congressman Sherley for this 
appropriation and for that. Now, they use the 
contingent funds for that purpose, and I have no 
doubt that the telegrams sent for that purpose cost 
the Government more than §7,500. Now it was never 
the intention of Congress to approrpiate money for 
this purpose...." (58 Congressional Record 403, May 29, 
1919). 



Subsequent interpretations of this provision have also focused 
on what has been called "executive branch lobbying" by federal officials 
who use appropriations to sponsor publicity, propaganda, or "grassroots'* 
type lobbying campaigns directed to the public that specifically urge 
or are designed to have persons contact their Representative or 
Senator in Congress on a particular issue. (See, for example 
Hearings on Legislative Activities of Executive Agents, House Select 
Committee on Lobbying Activities, 81st Congress, 2d Session, 1950; 
letter opinion from Assistant Attorney General Henry J. Miller, 1962, 
in 108 Congressional Record 8449-8451, May 15, 1962; letter opinion 
from Assistant Attorney General Henry S. Peterson to Senators Humphrey 



360 



CRS-b 

5/ 
and Muskie, July 19, 1973 ; see also American Public Gas Association v. 

Federal Energy Administration , 408 F. Supp. 640 (D.D.C. 1976.) 

In the case of contracts or grants, the statutory prohibition would 

therefore apparently apply where a federal official uses appropriated 

funds to contract with or provide a grant to a private party for 

the performance of certain "lobbying" services or activities directed 

at Congress for the federal agency or official. In such a case the 

prohibition would be focused on the use of funds appropriated by 

Congress for the agency, and the penalties for the improper use of >- 

such funds would be applicable to the federal officials involved in 

letting that contract or grant. However, where an agency lets a 

contract or gives a grant to a private party for a legitimate, 

non-lobbying purpose, such as for supplies, equipment, studies or other 

services, and the private contractor or grantee on its own accord uses 

the funds under its control, received from the government contract or 

grant, for lobbying purposes, then it would appear that no misuse of 

"appropriated" funds by a "federal officer or employee" would have 

occurred under 18 U.S.C. § 1913. 

The yearly approprations restriction, which is generally enacted 

as Section 607(a) of the annual Tresury, Postal Service and General 

Appropriations Act, and which prohibits the use of funds appropriated 



_5/ Copy available from Congressional Research Service files. 

bl The Treasury, Postal Service and General Governmental 
Appropriations Act, 1982, H.R. 4121, 97th Cong., as incorporated 
by reference in the continuing appropriations acts P.L. 97-51, 85, 
92 and 161, sets out the "propaganda and publicity" restriction at 
Sec. 608(a). 



361 



CRS-9 



by Congress for "propaganda or publicity" purposes designed to influence 
Members of Congress, is interpreted in a similar manner as the criminal 
statute. (See 59 Comp. Gen. 115, 117 (1979): "Our construction of 
section 607(a) was greatly influenced by the legislative history and 
judicial construction of the anti-lobbying penal statute, 18 U.S.C. 

§ 1913 "). That is, the provision, like § 1913, is interpreted 

"to prohibit Government officials from making appeals to the public 
to in turn contact their representative with respect to legislation, 
but not to prohibit agency officials from expressing their views and 
agency policy on pending legislative and appropriations matters." 
(Id. at 118)(Emphasis added). The Comptroller General has explained: 



In construing provisions such as section 607(a), it is important 
to recognize that an agency has a legitimate interest in communicating 
with the public and with legislators regarding its policies. It has 
been our position that the prohibition of section 607(a) applies 
primarily to expenditures involving direct appeals to the public 
suggesting that they contact their representatives and indicate their 
support of or opposition to pending legislation, i.e. , appeals to 
members of the public for them in turn to urge their representatives 
to vote In a particular manner. (General Accounting Office Memorandum, 
B-130961.140 - O.M., September 10, 1976, p. 9; also Decision of the 
Comptroller General, B-128938, July 12, 1976, p. 5; 56 C.G. 889; 
Decision of the Comptroller General, B-16A497(5), August 10, 1977, 
p. 3). 



362 



CRS-10 

Under this appropriations restriction, similar to the criminal 
statute, an agency could not do indirectly by contracting out what it 
would be prohibited from doing directly by itself. An agency would 
therefore be prohibited from contracting with or giving a grant to 
a private firm or individual for supplying services or items which 
are intended or designed to influence Members of Congress concerning 
pending legislation, just as it would be prohibited from using 
appropriations to pay for salaries of its own employees, or 
equipment and supplies, for use in such activity. 

It would appear to be an impractical and unreasonable interpretation 
of the statutory prohibition or the appropriation restriction, however, to 
attempt to follow the disbursement of all funds initially appropriated by 
Congress to their ultimate destination to apply the lobbying prohibitions to 
such funds since, in addition to contracts and grants, funds are 
appropriated to federal agencies and then disbursed as salaries, welfare 
payments, pensions, social security payments, disability payments and 
numerous other distributions. Once these funds appropriated by 
Congress to the agencies are so disbursed by the federal government and 
are under the control of private individuals, it would appear that the 
general prohibitions on lobbying with appropriated funds would no longer 
apply unless specific restrictions to that end were included in a 
particular contract or grant, or in a specific statute or appropriation. 
The fact that specific statutory and appropriation restrictions have 
been adopted limiting the use of particular contract or grant funds by 
private recipients for lobbying purposes apparently evidences a congressional 
determination that the existing law, absent such specific restrictions 
on particular grant or contract money, would not otherwise reach the use 
of such funds by private recipients. 



363 



cRs-n 

Agency Responsibility for Contractor or Grantee Conduct 

Although the general lobbying restrictions would not appear to 
apply directly to the private parties receiving contract or grant 
funds, questions may arise concerning an agency's responsibility 
when a private individual or firm is contracted to perform, for 
example, general informational services, and in the course of 
performing its government contract uses contract funds to engage 
in lobbying activities directed at federal legislation. In such 
circumstances, the Comptroller General of the General Accounting 
Office, who is empowered to oversee the use of appropriated 
funds and to move to recover funds improperly used, might look to the 
degree of agency involvement, control, or approval of such activity, 
or the appearance of such approval or sponsorship, versus the 
independent and private activity of a private contractor or grantee 
of the federal government. 

In decisions of the Comptroller General where private parties 
under contract to the United States were alleged to have been involved 
in lobbying activities, the Comptroller General appeared to look, 
to determine if the use of federal contract money by the private 
contractor implied governmental or federal agency support or 
authorization for such activities. Thus, where a federal agency 
and a private organization were undertaking a joint project such 
that the United States Government would be identified with any 
activity of the joint project participants, the Comptroller General 
implied that a federal agency should take steps to assure that 
federal monies made available by way of contracts to the private 
organization in the joint project are not used for lobbying or propaganda 



20-644 0—83 24 



364 



CRS-12 

activities. In the Report of the Comptroller General of the United 
States on "Problems With Publications Related to the Clinch River 
Breeder Reactor Project", B-130961, January 6, 1978, the Comptroller 
General suggested that in such circumstances, where the U.S. would 
be identified with the joint activities, contractual provisions 
barring such use of funds may be inserted in government contracts. 
In the particular instance under consideration there, relating to the 
Clinch River Breeder Reactor (CRBR) , however, such a solution could 
not be implemented since only private funds were used in issuing the^ 
offending "propaganda" material. As noted in the Comptroller General 
Report: "DOE has no contractual authority to stop their issuance 
because, as allowed under the CRBR contracts, BRC paid for them out 
of utility contributions and no federal funds were involved" (Id. at 2). 

However, since, in the case of the Clinch River Breeder Reactor 
project, a federal agency's involvement in an activity was to such an 
extent that United States Government approval or sponsorship of project 
related activities were implied, the Comptroller General suggested that, 
even if no_ federal monies were involved in the offending promotional 
activity, the agency take steps to assure the impartiality of the 
material or to make a clear disclaimer on behalf of the government. 
The Comptroller General stated specifically that where "the public 
correctly views a joint DOE/industry RD&D project such as the CRBR as 
a Government-sponsored project" and where "the public will tend to 
identify this information with the Government and is likely to view it 
as bearing the Government's seal of approval", then the federal agency 
should "exercise some responsibility", even though public funds were 
not used, "for seeing to it that the public and its elected representatives 



365 



CRS-13 

receive balanced and objective information" from the industry participants 
in the joint project concerning "project-related" informational material. 
The Comptroller General suggested that where promotional literature by 
the private organization in a joint project with the government does 
not meet certain standards of fairness that a disclaimer should be 
prominently displayed making it clear that "the publications are not 
Government approved" (Id. at 2). 

Similarly, in a 1976 opinion, the Comptroller General found that 
where an agency is involved in funding by contract continuing activities 
of a private organization for the government, and in performing those 
activities the organization uses contract funds for propaganda or 
lobbying activities that imply government sponsorship or endorsement, 
then the agency has a responsibility to prevent such use of funds in 
the future. (See Opinion of the Comptroller General of the United 
States, B-128938, July 12, 1976). It is not clear under this opinion 
whether the agency must assure that the private organization not use 
any contract funds for lobbying purposes in the future, or whether 
the agency may merely assure, by way of disclaimer, that the 
activities of the organization are clearly identified and perceived 
as those of the private party and not approved or endorsed by the 
government. The opinion does state, however, that an appropriate 
solution should "include" review of publications of the private 
organization which are funded by government contracts and "the use 
of appropriate disclaimer language" (Id. at 7), thus implying that 
such disclaimer would satisfy the appropriations restriction. 

This opinion dealt with a series of publications by a private 
organization funded through contract agreements with the Environmental 



366 



CRS-14 

Protection Agency under Purchase Order P5-01-2958-A. " One of the 

issues of the newsletter published contained an article urging readers 

to contact their congressman on a particular piece of legislation. 

The Comptroller General's opinion stated: 

It is likely that this article, if published directly 
by EPA, would constitute a violation of section 607(a). 
B-178648, September 21, 1973. The question here, however, 
is whether the violation may be imputed to EPA where the 
article was published and distributed, not by EPA, but by 
the Foundation under an otherwise proper contract. 



As noted above, there was no requirement for prior 
approval by EPA of each newsletter. However, each newsletter 
was required to be distributed to all Regional Public 
Affairs Directors and to the Project Officer. Thus, EPA 
knew, from its receipt of the October 1975 issue, that the 
Foundation was using an approval statement implying official 
Government sanction of the contents of the newsletter. In the 
circumstances presented, we believe that EPA had a duty to 
insure that its appropriation was not used in a manner that 
would violate section 607(a) .... 

Since similar newsletters have been or are being prepared 
by other contractors under the Water Quality Information Exchange 
Program, and since similar programs might be undertaken in the 
future, EPA should establish adequate procedural safeguards 
to assure that appropriated funds are not used in connection 
with activities which contravene statutory prohibitions 
against "publicity or propaganda." These procedures should 
include, but are not necessarily limited to, prepublication 
review by EPA of newsletters and the use of appropriate dis- 
claimer language. (Id., at 6-7). 



Thus, private individuals or organizations are apparently not 
themselves constrained by existing statutory or appropriations 
restrictions of general application from using funds under their 
control, which were received by way of a government contract or grant, 
for the purpose of lobbying, propaganda or publicity concerning 



367 



CRS-15 

legislation pending before Congress. In some instances specific 

statutory or appropriations language will restrict the use of particular 

contract or grant money for lobbying purposes, such as in grants or 

contracts from the Legal Services Corporation, and from the Departments 

of Labor, HHS , and Education. All agencies of the federal government, 

however, do not appear to be required as a matter of general policy 

to police the use of all contract or procurement funds it lets out, or 

to place within all contracts or grants clauses which restrict the 

use of such funds to non-lobbying purposes by the private 

recipient/contractors. However, the general appropriations restriction 

may arguably, under certain circumstances, place a responsibility on a 

federal agency concerning funds that it is letting out by contract 

or grant on a continuing basis for certain services or activities 

by private organizations. Such a situation may arguably arise where 

an agency and a private party are involved in a continuing relationship 

involving the federal funding of activities which indicate joint government 

participation, or government approval, sponsorship or endorsement 

of the particular activities. Where the federal agency is aware of 

the propaganda or lobbying activies engaged in by the private contractor 

or grantee with contract or grant funds under these circumstances, 

and is aware of the implication of government approval, sponsorship, 

or endorsement of such acitivites, but the agency continues to fund 

such activities through tne contractor or grantee, then a violation 

of the anti-propaganda appropriations restriction might arguably be 

imputed to the federal agency for its "tacit approval" of the 

continued use of its appropriations in this manner. In these 



368 



CRS-16 



circumstances, ic is possible that the General Accounting Office might 
require that an agency cease funding those activities, assure 
that its funds will not be used by the contractor or grantee for 
such purposes in the future, or assure by way of disclaimer that 
the activities are perceived and understood to be merely those of 
a private party which are not approved or endorsed by the United 
States Government. 




Legislative Attorney 
American Law Division 
October 1, 1982 



APPENDIX 3.— STATEMENTS AND LETTERS REGARDING 

OMB CIRCULAR A-122 

Statement of the Honorable 

JAMES M. JEFFORDS 

on 

COST PRINCIPLES FOR NONPROFIT ORGANIZATIONS 

before the 

Subcommittee on Legislation and National Security 

March 1 , 1 983 

On January 28, 1 98 3 , the Office of Management and Budget (OMB) 
published in the Federal Registe r a proposed revision to Circular 
A-122, "Cost Principles for Nonprofit Organizations." The same 
revision would be applied to all federal contractors and grant 
recipients . 

This revision would severely and improperly curtail the ability 
of non-profit and for-profit grantees and contractors to 
communicate with their local, state and federal governments. 

The OMB has announced its intention to withdraw and revise its 
proposed revision. I applaud this decision, and hope that the 
authors of the new proposal will take care to avoid the many 
shortcomings of the original. 

OMB makes essentially four arguments in support of the current 
revision. First, it contends that the government should not 
subsidize the political activities of private groups or 
institutions. Second, it argues that the federal government must 
not "tip the electoral process" by the use of its financial 
power. Third, it maintains that the taxpayers must not be 
forced, directly or indirectly, to contribute to the support of 
an ideological cause that they may oppose. I am in basic 
agreement with each of these arguments. However, to the best of 
my knowledge, current law effectively and reasonably guards 
against the use of federal dollars for these activities. 

Finally, OMB argues that the federal government must not give the 
appearance that it is taking sides on issues of public policy by 
funding particular organizations. I do not find this argument 
very compelling. It assumes either very little intelligence or a 
lot of imagination in concluding that because an organization 
receives federal funding, it will be thought to bear the federal 
government's imprimatur. Indeed, OMB has consistently maintained 
that federal awards are made solely on the basis of merit and 
that they are blind to politics. I believe the public and 
Congress can be trusted to discern that Planned Parenthood does 
not speak for President Reagan. 

The stated purpose of the revision, "to ensure that federal tax 
dollars are not U3ed, directly or indirectly, for the support of 
political advocacy," is not controversial. However, the proposed 
revision would extend well beyond this reasonable standard to 

(369) 



370 



place restrictions on the use of private dollars. This appears 
to me to be the sort of federal interference that we should avoid 
at all costs. If current restrictions are insufficient in 
barring federal funds from being used in political activity, then 
we should examine minor, technical corrections to remedy this 
situation. We should not, however, embrace a wholesale crippling 
of federal contractors and grantees' ability to communicate with 
the various levels of government. 

This is the likely outcome of the proposed revision. The 
definition of prohibited "political advocacy" has been so 
broadened as to include wholly legitimate activity on the part of 
recipients of federal funds. Such activity has traditionally 
been conducted with the knowledge and accord of Congress. This 
comes as no surprise since the practical and technical expertise 
of federal grant recipients is essential to the informed and 
intelligent conduct of any Congressional office. 

The proposed revision would bar not only traditionally restricted 
lobbying and electoral activities, but would extend to 
participation in all government processes — legislative, 
administrative and judicial. Unsolicited communication with a 
Congressional office by a nonprofit organization on virtually any 
subject would put the organization's funding in jeopardy. Many 
organizations could be expected to remain silent rather than run 
the risk of disallowed costs or debarment. 

Should this revision go forward in much the same form, it would 
be to everyone's detriment. The failings of government -- local, 
state and federal — would continue. Yet the people often most 
strategically placed to witness these shortcomings would be 
silenced. Are food banks able to meet the demand? We would not 
know. Is the job training program living up to expectations? We 
would not know that either. 



While 0MB re 
important to 
activities o 
degree of po 
apparently a 
government o 
the people, 
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and directio 
and guidance 
organization 
contracts . 



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cussion, and while 
ent in a democracy 
dvocacy," the advo 
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materially suffer 
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porations receivin 



t rights of Americans as 
it acknowledges that "the 
necessarily involve a 

cacy of OMB's democracy is 

s to the need for 

nted, "to communicate with 
provide leadership and 

ve that this "leadership 

without the information 

wide range of 

g federal grants and 



To be fair, the proposed revision does not make political 
activity impossible for federal grantees; just so difficult as to 
make it very unlikely that any but the largest profit and 
nonprofit organizations would continue to engage in "political 
advocacy" as 0MB defines it. Only these organizations would be 



371 



able to set up the two distinct offices contemplated by the 
revision. Smaller organizations would be unable to do so. I am 
disturbed by the implications of this, as it seems to distort the 
very process that OMB seeks to correct. 



Finally, I would like to reiterate my hope that the drafters of 
the new proposal will take a more circumscribed approach towards 
this issue, neither overestimating the problem nor 
underestimating the American people's intelligence. I do not 
believe that the scope of this problem is nearly so large as the 
reach of the currently proposed revision. Moreover, any problems 
that may exist are not confined to either the profit or nonprofit 
sectors. I hope and trust that any new revision will treat each 
in an even-handed way, and that OMB will consult closely with 
Congress in the crafting of the new revision. 



372 



STATEMENT OF CONGRESSMAN TED WEISS 



I would like to commend Chairman Brooks for holding 
this hearing on OMB ' s proposed revision to Circular A-122. 
This hearing affords the Congress and the public an important 
opportunity to examine the serious and far-reaching 
consequences of OMB's determination to exclude non-profit 
organizations from participating in all government decision- 
making. 

Although the stated intent of OMB's proposal is to 

ensure that federal funds do not support political activity, 

the effect would be to bar non-profit federal grantees 

from participating in our democratic process, even if 

such activity is funded exclusively by private resources. 

The proposal defines political advocacy in terms so broad 

and vague that almost any communication or involvement 

with government or any effort to influence or inform the 

public would be suspect and subject to OMB scrutiny. 

Its most insidious application would be to impose sanctions 

against non-profit organizations whose staff members are 

"required" or "induced" (left undefined in the proposal) 

to engage in political advocacy on their own time. 

Essentially, this radical departure from current policy 
— t 
would force organizations to choose between receiving federal 

grants and participating in government affairs, unless of 



373 



course, they are able to maintain two completely separate 
operations. As we all know, few non-profit organizations 
can afford this illogical, inefficient and unnecessary 
duplication of staff and facilities. 

OMB's proposal constitutes frightening evidence that 
this Administration is ready to renounce its responsibility 
to nurture government that is both open and responsive to 
all Americans. This closed and exclusive posture jeopardizes 
the integrity of our democratic political process and the 
protections guaranteed the public by the First Amendment. 
By predicating the receipt of federal grants and contracts 
on the abdication of one's constitutionally protected rights, 
OMB has unilaterally overstepped Congressional limitations 
on political activities of tax-exempt organizations and 
the use of federal dollars for lobbying and partisan activities. 
Further, OMB has blatantly disregarded the dictates of 
numerous Supreme Court decisions that carefully guard against 
government infringement on First Amendment rights. 

While OMB claims that its rule would neutralize the 
process of awarding federal grants, in reality, the proposal would 
establish double standards that are highly discriminatory. 
Well established, financially secure non-profit organizations 
might be able to restructure themselves in order to accommodate 
OMB's requirements and still remain involved in public affairs. 
However, it would be financially impossible for the vast 
majority of non-profits, particularly those which represent 
or provide services to the poor, minorities, and the politically 
disadvantaged, to both fulfill grant obligations and engage 



374 



in political advocacy. The Supreme Court directly addressed 
this question of equal protection, "The First Amendment's 
protection, against governmental abridgment of free expression 
cannot properly be made to depend on a person's financial 
ability to engage in public discussion" ( Buckley v. Vale o) . 
OMB's willingness to arbitrarily trample on the fundamental 
rights of those unable to afford its new mandate places in 
serious doubt this Administration's commitment to protecting 
civil rights and furthering equal access to government for all 
our citizens. 

OMB's crusade to impede the workings of participatory 
democracy severely threatens our ability to develop sound and 
just public policy at the federal, state and local level. 
It is precisely the free flow of ideas, the sharing of diverse 
perspectives, and the communication of factual information that 
help mitigate the possibility of unaccountable, harmful, and 
ill-advised government decision-making. Non-profit 
organizations, many of which provide direct government services 
to their communities, often offer government vital information 
on the efficiency and effectiveness of public programs. It is 
simply unreasonable and impractical for the Administration, 
particularly given the President's emphasis on private sector 
initiatives, to insulate government from the insight and experience 
of its non-profit grantees. 

It is my understanding that as a result of the tremendous 
public outcry, OMB has decided to revise and reissue its rec- 
ommendations. May I suggest that OMB not waste its time and 
energy; the proposal is fundamentally wrong and unconstitutional 
and should be completely withdrawn. Rather than devising new 
ways to rob citizens of their involvement with government, 
OMB and the Administration should scrupulously work toward 
fostering open rule, not only for the people, but by the people 
as well. 



375 

American council on education 

Division of Governmentol Relorions 
March 7, 1983 

The Honorable Jack Brooks, Chairman 
Subcommittee on Legislation and 

National Security 
Committee on Government Operations 
U.S. House of Representatives 
Washington, DC 20515 

Dear Mr. Chairman: 

On behalf of the American Council on Education, an association 
representing over 1,500 colleges and universities and other organizations in 
higher education, and the associations listed below, we appreciate this oppor- 
tunity to comment on the Administration's proposal to disallow costs related to 
"political advocacy," which was the subject of hearings held by the Subcommit- 
tee on March 1st. We ask that our comments be included in the record of those 
hearings. 

Our chief interest in this proposal is threefold. We are concerned 
over the inconsistent reports of the intended scope of the proposed rules; we 
object to the proposal on practical grounds; and we believe the proposal in its 
current form has no statutory basis and is constitutionally suspect. 

The Scope of the Proposed Regulations 

The Office of Management and Budget published these proposed regula- 
tions in the Federal Register of Monday, January 24, 1983, as a notice offering 
interested parties an opportunity to comment on a proposed revision to 0MB 
Circular A-122, "Cost Principles for Nonprofit Organizations." In their pres- 
ent form, these principles are applicable to higher education associations but 
not to colleges and universities themselves, whose federal grants and contracts 
are governed by 0MB Circular A-21, "Cost Principles for Educational Institu- 
tions." However, both the Summary and the Appendix to the notice indicate that 
similar revisions are being proposed simultaneously for civilian and defense 
contractors through appropriate actions of the Department of Defense, National 
Aeronautics and Space Administration, and General Services Administration. One 
of our associations has received a letter from the Deputy Under Secretary of 
Defense (Acquisition Management) requesting comments on the proposed changes to 
the various cost principles in the Defense Acquisition Regulations, which 
govern defense contracts. 

Many of the nation's colleges and universities are recipients of 
contracts from the Department of Defense and have similar contractual rela- 
tionships with major civilian departments and agencies. Therefore, even though 
Circular A-122 does not currently apply to educational institutions, those 
major colleges and universities which are civilian and defense contractors 
would be subject to the provisions of the proposed revision if these were to 
be incorporated across the board into the various procurement regulations. 
Whether or not this will be done is uncertain at this time. 



One Duponr Cirde. Woshingron. DC. 20036-1 193 (202) 833-4736 



376 



On the one hand, both OMB's Counsel for Policy Analysis and Law, who 
was the principal author of the proposal, and the Director of its Financial 
Management Division, who is the official 0MB point of contact, have advised 
various representatives of the academic community that the proposal will not be 
applied to colleges and universities. On the other hand, in response to ques- 
tions regarding the Department of Defense's invitation for comment on behalf of 
the academic community, the Director of the Defense Acquisition Regulatory 
Council has stated unequivocally that the proposed rules are intended to be 
applied across the board to all defense contractors, specifically including 
colleges and universities as well as nonprofit and commercial organizations. 
His counterpart in GSA's Federal Procurement Regulations Directorate, which 
publishes the cost principles applicable to all contractors with the civilian 
agencies of the government, is less certain of the intended scope of this pro- 
posal, but "would not be suprised" if college and university contractors were 
included. 

In addition, the unsigned, undated question and answer sheet now 
available from OMB's Office of Public Affairs, is internally inconsistent. 
Question 7 asks, "Are the proposals applicable across the board, to contractors 
as well as nonprofit grantees?" The answer given is, "Yes. OMB's proposed 
changes in Circular A-122 apply to nonprofit organizations, while identical 
proposals by Defense and GSA apply to contractors." That answer supports the 
DOD contention that the proposal will apply to college and university contrac- 
tors. But the next sentence of the answer says, "The proposals do not apply to 
state and local governments or their contractors or grantees, or to hospitals, 
universities or Indian tribes." Given the conflicting statements of officials 
who administer federal grants and contracts, we believe that the exclusion of 
colleges and universities from the scope of any proposed new strictures should 
be stated by 0MB clearly and explicitly. 

Practical Objections 

No reasonable person could object to the purported purpose of the rule 
proposed at 48 FR 3348, which is to ensure that federal tax dollars are not 
used, directly or indirectly, for the support of "political advocacy." Nor 
could any reasonable person object to the use of the statutory definition of 
"influencing legislation" contained in the Internal Revenue Code of 1954 at 
26 U.S.C. 4911 as the basis for the definition to be inserted in the proposed 
cost principles. But the proposed rule greatly expands and distorts that 
statutory definition, as well as the prohibition against the use of appropri- 
ated funds to pay the expenses of "any activity designed to influence legisla- 
tion or appropriations pending before Congress" contained in P.L. 95-480 and 
subsequent appropriation acts of the Department of Health and Human Services. 

Under the proposed rule, organizations and individuals could not write 
to or speak with federal officials or legislators or file amicus curiae briefs 
with the courts, even on their own time and with their own money, without 
penalty. The rule would provide for a flat prohibition on federal reimburse- 
ment for space, salaries, telephones, photocopying, meetings, conferences, 



377 



publications, and other operating costs of federal projects, if an organization 
uses the same personnel or facilities to conduct "political advocacy" that it 
uses to carry out work under federal grants and contracts. This would subject 
individuals and organizations who communicated with federal officials or legis- 
lators with the loss of federal grant and contract funds, or force them to 
segregate completely all personnel and facilities receiving federal funds from 
those involved in poltical advocacy. The latter alternative is unworkable. 

In particular, it is not possible for the executive director of an 
organization to divorce himself or herself from either the service or the 
advocacy side of the operation. He or she must be responsible for all the 
important pursuits of the organization. Thus, when the government comes to a 
voluntary organization requesting help with certain public services, or when 
the organization seeks to perform services, the government usually requires 
that a portion of the chief executive's time be assigned to the project. This 
is a measure of assurance that the project receives the highest level of atten- 
tion. By the same token, if the organization seeks to express its views to an 
executive department or agency, to the Congress, before a court, or even to the 
public, the chief executive must naturally be involved in the formulation of 
the organization's position and will usually sign any letters or statements 
involved. It would be unrealistic and unfair to require the director to dis- 
qualify himself or herself from either aspect of an organization's work. 

This proposal would therefore have a significant and deleterious 
impact on the participation of nonprofit organizations in the governmental 
decision-making process. The breadth of the proposed regulation would cause 
turmoil within the nonprofit sector, reducing its capacity to perform public 
service functions effectively. Although we are sympathetic with OMB's stated 
goal, it is our position that the proposed revision is excessive, unwieldy, and 
unnecessarily disruptive of the legitimate functions of nonprofit organiza- 
tions. 

Moreover, were DOD, NASA, or GSA to incorporate the proposed rule 
across the board into the principal procurement regulations, a university which 
is a federal contractor would be penalized if its president in a commencement 
address urged support for higher education, or in a community forum made a 
statement in favor of a city bringing in a new industry. In addition, a uni- 
versity would be unable to claim salary costs for activity directly applied to 
a federal research project by a professor of microbiology who made a public 
statement expressing concern about pollution of the environment. Apparently, 
even if only an infinitesimal portion of the activity of a university president 
or professor is devoted to making such statements, no part of his or her salary 
could be charged to indirect cost recovery. This penalty assessed for partici- 
pating in public discussion of issues would impede the exchange of ideas and 
viewpoints that is vital to the public good. 

In their current form, Circulars A-122 and A-21 provide a reasonable 
set of procedures based on uniform and sound accounting principles for deter- 
mining costs under federal grants and contracts. The proposed revisions would 
undermine the procedures now in place and would violate the tenants of good 
accounting by requiring inconsistent treatment of similar costs. 



378 



Statutory and Constitutional Objections 

Although the Congress has sought from time to time to limit lobbying 
actitivies by federal grantees, the higher education community is unaware of 
any statutory basis for such a sweeping prohibition as that contained in these 
proposed rules and in the above cited letter from the Deputy Under Secretary of 
Defense. Further, we believe that the proposal in (b)(4) to expand the Inter- 
nal Revenue Code's prohibition against influencing "any legislation" to include 
influencing "governmental decisions," which is defined in (e)(2) as including 
"any rulemaking, guidelines, policy statement, or other administrative deci- 
sions of general applicability and future effect" would be directly contrary 
to the provisions of Sec. 3517 of the Paperwork Reduction Act of 1980 
(P.L. 96-511)(44 U.S.C. 3517). 

In addition, prohibition of reimbursement for costs of nonpolitical 
activities which are attributable to employees, equipment, or facilities also 
involved in privately-funded political advocacy is constitutionally suspect. 
Without repeating the legal arguments advanced in greater detail by other 
organizations, we wish to state our belief that the proposed rule denying 
contraqtors and grantees reimbursement of the costs of entirely proper, non- 
political activities chills the exercise of First Amendment rights of such 
groups to participate in the governmental process. Such a rule, if drawn at 
all, must under a long line of cases be narrowly structured to protect a com- 
pelling governmental interest. Surely, a minimal restriction could be devised, 
if it be warranted at all, that would deny reimbursement for actual lobbying 
activities without having the entire amount contaminated by the slightest 
involvement in political advocacy. 

The strictures already imposed on nonprofit organizations by the 
Internal Revenue Code provide more than adequate safeguards against excessive 
lobbying activities by such organizations. There has been no evidence adduced 
to demonstrate that the requirements of colleges, universities, and other 
charitable organizations to observe such regulations have been abused. Fur- 
thermore, absent an explicit statutory basis, 0MB should not be permitted to 
promulgate a rule such as that currently proposed. 

Conclusion 

On February 25th 0MB announced that the original proposed rule would, 
in effect, be withdrawn, and that a revised proposal would be issued within two 
weeks of that date, initiating another 45-day comment period. We intend to 
make our concerns known to officials in 0MB and other affected agencies and 
departments. We greatly appreciate this opportunity to bring our views to the 
attention of the Subcommittee, and we stand ready to work with you to ensure 
that any rules promulgated will achieve the desired results with a mimimum of 
interference in the full exercise of the rights and legitimate functions of 
nonprofit organizations, including our nation's colleges and universities. 



379 



This letter is sent on behalf of: 

American Association of Community and Junior Colleges 

American Association of State Colleges and Universities 

American Council on Education 

Association of American Colleges 

Association of American Medical Colleges 

Association of American Universities 

Association of Urban Universities 

Council of Graduate Schools in the United States 

Council of Independent Colleges 

Council on Governmental Relations 

National Association of College and University Business Officers 

National Association of Independent Colleges and Universities 

National Association of Schools and Colleges of the United Methodist 

Church 
National Association of State Universities and Land-Grant Colleges 
National Association of Student Financial Aid Administrators 



Sincerely, 



/ 




fa 




Sheldon Elliot Steinbach 
General Counsel 



cc: Members of the Subcommittee 
SES:gfr 



20-644 0—83 25 



380 



AMERICAN DENTAL ASSOCIATION 

WASHINGTON OFFICE • SUITE 1004 / 1 101-1 7TH STREET, N.W. • WASHINGTON. D.C. 20036 • PHONE 202/833-3036 

March 4, 1983 



The Honorable Jack Brooks 

Chairman 

Subcommittee on Legislation and National Security 

Committee on Government Operations 

2157 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Mr. Chairman: 

I am writing to express the views of the American Dental Associatici 
concerning OMB ' s proposed revisions to Circular A-122, Cost 
Principles for Nonprofit Organizations. I request that these 
comments be included in the hearing record of the subcommittee. 

In short, the Association believes the proposed rule is unreason- 
ably harsh and should be withdrawn. It would submit nonprofit 
organizations such as the ADA to unnecessary restrictions in order 
to achieve the goal of limiting federal funds from being used for 
political advocacy. As proposed, the rule would restrict severely 
the ability of partially federally-funded groups to participate 
in the political process. It also provides extreme punitive action 
for even technical violations. 

The Association has specific objections to several basic provisions 
included in the draft regulations: 

• The new definition of political advocacy is unreasonably 
broad. The prohibition of activities such as submitting 
amicus curiae briefs and commenting on regulations 
removes major avenues of redress from nonprofit groups. 

• The new proposal departs from a system that would allow 
legitimate costs to be funded under a grant or contract, 
and substitutes the overly restrictive plan for absolute 
separation of activities. 

• Organizations would be restricted from participating in 
cooperative efforts with other nonprofit groups due to 
the fear of being tainted by their "political advocacy." 



381 



• The rule would prevent many organizations from 

providing necessary information to legislators and 
administrators. 

We believe that adequate safeguards now exist to ensure that 
only legitimate costs are paid for with federal funds. The 
new proposal is therefore unnecessary. It would only serve to 
prevent groups and individuals from exercising their First 
Amendment right of free speech and the ability to petition their 
government. 

Thank you for allowing us this opportunity to present our views. 




Jamas Kerrigan, 
i Chairman 
Council on Legislation 




JK/jes 



382 



PUBLIC COMME.VI 
SUBMITTED BY HELEN ARNOLD 
TULSA, OKLAHOMA 



Mr. Chairman and Members of the Government Operations Com- 
mittee. I want to thank you for the opportunity to make 
comments on the proposed OMB rules and regulations regarding 
advocacy on issues and laws by non-profit organizations. 

I am Helen Arnold, I am a former State Representative and 
live in Tulsa, Oklahoma. I have been involved for many 
years in citizen participation and with various non-profit 
organizations in my community and state. It is from this 
viewpoint that I wish to address what the Office of Budget 
and Management proposes to do to non-profit organization. 

I am sure all of you are keenly aware of the first amendment 
to the Constitution of the United States but it never hurts 
to reiterate those wonderful words: "Congress shall make no 
law respecting an establishment of religion, or prohibiting 
the free exercise thereof; or abridging the freedom of 
speech, or of the press; or the right of the people peace- 
ably to assemble, and to petition the Government for a 
redress of grievances". 

Today, more than any time in the history of our country, I 
believe there is a concerted effort to repeal, by the fiat 
of rules and regulations, this part of our Constitution. It 



383 



is no more evident than in the Executive Departments of the 
present administration. 

It is my belief that the agenda of some peoole in this 
country is to silence those citizens who do no profess their 
particular brand of political philosophy. I am determined 
this will not happen and am asking you to commit yourself to 
do the same. 

When President Reagan took office he asked that the private 
sector initiate a program of taking over or at least helping 
the government provide services which he felt our government 
could not longer afford, the private-public sector initia- 
tive. Now, we find that if we do this we are not supposed 
to comment on any law or propose any public policy changes 
without being punished by withdrawal of the public support. 

It is my understanding that these rules not only forbid 
those organizations who receive federal funds to speak out 
on federal issues but also go so far as to forbid comment on 
local issues. Organizations which would be affected and 
therefore their members would not be able to speak out in 
one voice, would be Planned Parenthood, Senior Citizens, 
Enviornmental Organizations, League of Women Voters, Organi- 
zations that help the poor through commodity distribution, 
Educational Institutions and Public Schools. 



384 



I can envision interpreting these rules so that if you 
receive any indirect help such as being non-profit or gifts 
are tax deductible that would be considered as receiving 
federal monies and you could no longer advocate changes in 
government policy or lav/. Could these rules and regulations 
silence churches, farmers organizations, professional organ- 
izations? I don't know but lets not take any chances. 

I ask you to deny these rules and regulations. Uphold the 
first amendment to the constitution and reaffirm the public 
policy of our government that it is of the people, for the 
people and by the people. Government is in trouble in this 
country, many people feel it cannot be trusted and if these 
A122 Review rules and regulations are put into effect their 
doubts will be confirmed. 

Thank you again for the opportunity to comment to the 
committee . 



385 



%*M 



BUSINESS ADVISORY COUNCIL ON FEDERAL REPORTS 






1001 Connecticut Avenue. N.W., Suite 925. Washington. DC. 20036 • (202) 3311915 



March 4, 1983 



The Honorable Jack Brooks 

Chairman, Subcommittee on Legislation 

and National Security 
Committee on Government Operations 
Room B-373 

Rayburn House Office Building 
Washington, D.C. 20515 

Dear Chairman Brooks: 

BACFR emphatically states that issuance of the proposed revision 
to Office of Management and Budget Circular A-122, "Cost Principles 
for Nonprofit Organizations" would pose a serious threat to effective 
implementation of the Paperwork Reduction Act of 1980. The proposed 
revision of OMB Circular A-122, published in the Federal Register 
January 24, and companion proposals of the Department of Defense, 
General Services Administration and National Aeronautics and Space 
Administration are absurd in the breadth of activities that would 
newly be considered as "political advocacy." 

To illustrate our concern. . . 

for some years, BACFR and its members knowledgeable in 
the complex field of federal procurement have labored 
to pare back unnecessary and wasteful reporting and 
recordkeeping mandates imposed on federal contractors. 
These and other efforts to eliminate or reduce unnecessary 
and unduly burdensome paperwork requirements are documented 
in the BACFR 1982 Annual Report, copy enclosed for your 
convenience . 

The best way to accomplish these cost-cutting objectives is for 
company personnel charged with completion of a particular information 
requirement to provide commentary to initiating agencies, the Office 
of Management and Budget, and (in connection with their information 
resource management reviews) the General Accounting Office. Without 
informed business comments - in large measure provided through 
the efforts of BACFR - government officials have no concrete basis 
for changing or deleting unwise, unintelligible and unnecessary 
information collection proposals. One of the cornerstones of the 
1980 Act is Section 3517 which requires the Director of OMB to 
"provide interested agencies and persons early and meaningful 
opportunity to comment ." (Emphasis added.) 



386 



Proposed OMB Circular A-122 together with the companion pronouncements 
of the DOD, GSA and NASA, would significantly subvert the 1980 
Act, as well as amplifying provisions in OMB Proposed Rule, 5 CFR 
Part 1320, "Controlling Paperwork Burdens on the Public." (See, 
for example, Sections 1320.12(e) and 1320.18; BACFR recommended 
amendment of both sections to make them conform more closely with 
Section 3517 of the 1980 Act.) 

The proposed circular would disallow the full salary of a contractor's 
employee who furnishes comments to policy-making officials in 
Government - whether federal, state or local. Other costs would 
also be disallowed. The effect, bayonetting of much informed 
commentary to government, will seriously impair the exchange of 
views contemplated under the 1980 Act. We submit this is detrimental 
to the national interest and contrary to the continuously expressed 
views of your Committee and the Congress. 

Unless proposed Circular A-122 is permanently withdrawn, gargantuan 
amounts of additional recordkeeping and, for sure, reporting demands 
will spew forth, adding immense additional paperwork costs. The 
crying need is to simplify and cut procurement and other red tape 
for all sizes and types of businesses. There is a pressing need 
to strengthen and expand the base of U.S. contractors. Proposed 
A-122 will have a contrary, negative effect especially with respect 
to smaller businesses. Among other things, companies would be 
obliged to maintain and review a "diary" of contacts and conversations 
participated in by their employees. We have consulted a number 
of members in preparing this statement. It reflects the views 
of large and small firms doing or seeking to do business with the 
federal government. 

We appreciate the unbroken attention that you as Chairman, the 
members of your Committee and your staff devote to issues related 
to the Paperwork Reduction Act. We respectfully request that this 
statement be included in the printed record of your hearings. 

Sincerely , 



David M. Marsh 
Executive Director 



DMM:amh 

Enclosure 

cc : The Honorable Frank Horton 



387 




center for community change 



BOARD OF DIRECTORS 

Rebecca Andrada 

Chair 

Peter B Edelman 

Vice Chair 

Raul Yzaguirre 

Vice Chair 

Burke Marshall 

Chair/ 

Executive Committee 

Michael Ansara 

Charles Bannerman 

Harriet Barlow 

Julian Bond 

John Carr 

Abram Chayes 

Gale Cincotta 

Mike Clark 

Cleveland Dennard 

Douglas A. Fraser 

Peter Goldmark. Jr. 

Irma Gonzales 

Ronald Grzywinski 

Robert Larson 

David Lizarraga 

Margaret McNeill 

Louis Nunez 

Channing Phillips 

Hugh B Price 

David Ramage. Jr. 

Edwin F. Shelley 

Neil V. Sullivan 

William Velasquez 

Lucius Walker, Jr 

Barbara Williams 

Robert Woodson 



March 2, 1983 



The Honorable Jack Brooks 

Chairman 

Government Operations 

U.S. House of Representatives 

Room 2449, Rayburn Bldg. 

Washington, D.C. 20515 

Dear Congressman Brooks: 

Enclosed are the comments of the Center for Community 
Change on the proposed amendments by 0MB to its Circular 
A-122. We hope they may be included as part of the record 
connected with the hearings which your sub-committee held 
yesterday. 

These amendments are an effrontery both to the private 
non-profit sector at a time when it is already under siege as 
a result of the federal budget cutbacks and to the spirit of 
the first amendment rights of all American institutions and 
individuals. 

We trust that you and your colleagues will do your best 
to see that the attempts of the Office of Management and Budget 
to impose additional restrictions on the operation of non-profit 
organizations are completely stopped. 

With best wishes. 



OFFICERS 

Pablo Eisenberg 

President 

Arthur Brazier 

Vice President 

Andrew Motl 

Vice President 

Othello Poulard 

Vice President 

Leonard Lesser 

Secretary/ 

General Counsel 



Sincerely^ 




Pablo Eisenberg 
President 



PE/psm 
Enclosure 



1000 WISCONSIN AVENUE, N.W.. WASHINGTON, D. C. 20007 • 202/338-6310 



388 




center for community change 



BOARD OF DIRECTORS 

ReDecca Andrade 

Chair 

Peler B Edetman 

Vice Chair 



February 25, 1903 



Raul Yzaguirre 

Vice Chair 

Burke Marshall 

Chair/ 

Executive Committee 

Michael Ansara 

Charles Bannerman 

Harriet Barlow 

Julian Bond 

John Carr 

Abram Chayes 

Gale Cincotta 

Mike Clark 

Cleveland Dennard 

Douglas A Fraser 

Peter Goldmark. Jr. 

Irma Gonzales 

Ronald Grzywinski 

Robert Larson 

David Ltzarraga 

Margaret McNeill 

Louis Nunez 

Channmg Phillips 

Hugh B Price 

David Ramage. Jr. 

Edwin F Shelley 

Neil V Sullivan 

William Velasquez 

Lucius Walker. Jr. 

Barbara Wil'iams 

Robert Woodson 



OFFICERS 

Pablo Eisenberg 

President 

Arthur Brazier 

Vice President 

Andrew Mon 

Vice President 

Othello Poulard 

Vice President 

Leonard Lesser 

Secretary/ 

General Counsel 



Mr. John Lordan, Chief 
Financial Management Branch 
Office of Management and Budget 
Washington, D.C. 20503 



Dear Mr. Lordan: 



I am writing to express our strongest possible objections 
to the proposed amendments to Circular A-122, "Cost Principles 
for Nonprofit Organizations", which appeared in the Federal 
Register on January 24, 1983. 

It is not often that an agency or office of the executive 
branch of the federal government publicly reccmmends regulations 
or directives that are so sweepingly restrictive, so vague in 
definition, so injurious to the prograns they are supposed to 
benefit, and so insensitive to the First Amendment rights of 
private sector institutions. The nature of the proposed amend- 
ments casts serious doubts, and indeed a deep shadow, on the 
motivation of those who were responsible for the draft regula- 
tions as well as on their consistency with the President' s pub- 
lic statements with regard to private sector initiatives and de- 
regulation. 

These proposed amendments do not offer a constructive 
approach to documented problems of political advocacy on the 
part of federal grantees and contractors. Rather, they appear 
to be a punitive effort to restrict the legitimate advocacy 
activities of private nonprofit organizations. They reflect at 
best a lack of understanding about how nonprofit organizations 
are organized and operate in the real world. They are a heavy- 
handed attempt by the federal government to regulate and control 
nonprofit organizations in a way tliat violates the very spirit 
of public/private sector partnerships which the current Adminis- 
tration has championed through the President' s Task Force on Pri- 
vate Sector Initiatives and other efforts. 

The proposed amendments in our view are deficient for a 
number of reasons which are listed below. 



1000 WISCONSIN AVENUE. N W . WASHINGTON, C. 20007 • 202/338-6310 



389 



1. Added Restrictions Are Unnecessary 

Tax-exenpt nonprofit organizations are currently barred 
from participating in partisan political activities. Under 
the Internal Revenue Code, they are also prohibited frcm 
carrying on substantial lobbying, except for those public 
charities which elect to be subject to specific limits on 
lobbying expenditures. In addition, most federal agencies 
specifically prohibit the use of their grant funds for 
lobbying and political activities. In short, protections 
do exist which prevent federal funds fran being used to 
support political or legislative advocacy. 

What then is the problem which the amendments are designed 
to correct? The sunmary of the proposed revised circular 
suggests that there are serious abuses by federal grantees 
in the use of federal funds for "political advocacy" . Yet 
no specifics are given. No serious case is made to prove 
this sweeping allegation. What kinds of inappropriate 
activity are occurring? Where is the documentation? Who 
specifically is complaining? What agencies or Congressmen 
are concerned? 

It is reasonable to expect that any radical change in 
public policy would be the result of substantial failures 
in the systan, a series of documented serious abuses and a 
crescendo of public complaints demanding change. No such 
events have occurred to justify the proposed policy shifts. 

Such a lack of justification coupled with radical moves to 
restrict First Anendment rights understandably leads to the 
suspicion that the real goals of the amendments cannot be 
justified on their merits, and that their purposes are in 
fact punitive. 



The Restrictions Limit Many Activities Which Are Essential 
and Neither Political Nor Legislative 

While using the broad term "political advocacy" to create 
the sense that the directive is aimed at activities in 
which groups use federal funds to engage in politics or 
lobbying, the amendments in fact would restrict many 
non-political and non-legislative activities. They would 
restrict normal — in fact essential — participation by 
nonprofits in the regulatory and government decision-making 
processes. 



390 



Let me cite a few examples of activities which vvould be 
effectively barred for the private nonprofit organi2ations 
with which we work. These organizations are largely pri- 
vately supported neighborhood and rural community groups 
representing poor and minority people. Such groups 
exemplify the best in American traditions of self-help and 
private initiative, and have been cited by President Reagan 
and leaders in the Administration for their value. 

A low-inccme community group vhich receives Section 8 sub- 
sidies to rehabilitate housing would be unable to testify 
in public hearings and advocate that Ccmnunity Development 
Block Grant funds be allocated for street improvements or 
relocation assistance related to that rehab project. 

A minority organization receiving funds from the Office of 
Juvenile Justice and Delinquency Prevention under the Vio- 
lent Juvenile Offender Program which was designed by this 
Administration would not be permitted to meet with the 
police department and discuss changes in policy which would 
lead to more effective methods for street patrols or 
handling juvenile offenders or getting greater cooperation 
frcm victims and witnesses to crimes. 

A community group receiving assistance frcm ACTION under 
the Foster Grandparents program — which Mrs. Reagan has 
strongly backed — could not meet with local school 
officials to advocate any changes in after-hours programs 
or the use of school facilities. 

A Head Start program could not participate in state hear- 
ings on the use of Education Block Grant funds. A commun- 
ity health center could not participate in any discussion 
of state usage of Maternal and Child Health or Preventive 
Health Block Grant funds. 

These are essential activities. They are essential in 
terms of First Amendment rights, the health and indepen- 
dence of the private sector frcm the heavy hand of govern- 
ment, and the job to be done to improve opportunities and 
living conditions for low income Americans. 

A broad attack on these essential rights and activities, 
couched in vague and atibiguous language, and subject to 
arbitrary interpretation or selective enforcement, presents 
a great danger to the nation. 



391 



3. The Restrictions Would Increase Costs far Efcinprofits, Pri- 
vate Philanthropy, and the Federal Government 

Nonprofit organizations are already suffering fron severe 
financial problems. The state of the economy, the cutbacks 
in federal domestic support for the nonprofit sector, and 
the inability of private philanthropy to fill the gap have 
greatly reduced the funds available to nonprofits. 

These new restrictions would increase costs for nonprofits 
which refused to choose between accepting federal funds and 
exercising their rights to carry out essential and Constitu- 
tional lv-guaranteed rights. Such groups vould have to 
establish a second parallel structure, with a separate 
staff, separate equipment, and a separate office. Large 
profit-making entities might be able to afford this duplica- 
tion and increased costs, but nonprofits — especially 
small nonprofits — could not. 

Philanthropy vould be burdened with these costs as wall. 
If their grantees were hit by the inflationary impact of 
these new regulations — an ironic result considering the 
emphasis of the Vice President' s task force on deregulation 
— philanthropists in corporations and foundations would 
have to increase their giving or see the impact of their 
funding undercut. 

Finally, government itself would feel this inflationary 
impact. It, too, would be faced with having to cover 
higher costs or see services reduced. 



4. The Directive Violates the Spirit of Public/Private Partner- 
ships 

The Administration has often stressed partnerships with the 
private sector. Such partnerships necessarily include the 
mixing of public and private money to achieve mutual goals. 

Yet the directive would gravely restrict the rights of the 
private sector. It would create an imbalance, undercutting 
the independence of the private sector while strengthening 
the hand of the federal government. This one of the 
several ironies in. the proposed amendments. 



392 



These Radical, Restrictive Changes in Policy Would Be In- 
stituted by Fiat, Without Legislative Authorization 

The Administration has often criticized federal agencies 
which have issued regulations which go far beyond the in- 
tent of Congress and, in effect, make law without involve- 
ment of the legislative branch. 

These proposed amendments are the epitome of such abuses. 
They impose burdensome, restrictive, and costly new regula- 
tions. They would have enormous consequences for the func- 
tioning of the nonprofit sector. They raise fundamental 
Constitutional questions. And they were issued without Con- 
gressional hearings, public debate, or legislation. 

It is absolutely essential that the proposed amendments be 
withdrawn inniediately and in their entirety. It is ocm- 
pletely inappropriate for CMB to issue such regulations or, 
indeed, to initiate any new regulations which involve major 
substantive policy changes without appropriate Congression- 
al involvement. 



Yours-sincerely , 



Yburs-sj. 




Pablo Eisenberg 
President 



AHM/PE/ysg 



393 



g^/>*S The College Board 

888 Sevenlh Avenue. New York. New York 10106 
(212)582-6210 




OMice o) the President 



March 4, 1983 



Mr. John J. Lordan 
Chief, Financial Management Branch 
Office of Management and Budget 
Washington, D.C. 20S03 

Dear Mr. Lordan: 

In accordance with your January 24, 1983 Federal Register notice of 
proposed revision to Circular A-122 "Cost Principles for Nonprofit 
Organizations," I appreciate the opportunity to comment on this im- 
portant matter. 

The College Board as a national nonprofit educational association with 
a membership of 2,500 colleges, universities, cchools and educational 
associations would be affected by the proposed circular and is deeply 
concerned about the appropriateness promulgating such a rule. We oppose 
the adoption of the proposed revision and respectfully recommend that 
the Office of Management and Budget withdraw its proposal for several 
reasons. 

Circular A-122 would expand the definition of "political advocacy" for 
nonprofit organizations such as the College Board far beyond the scope 
of definitions currently in effect. The proposed definition would be 
so pervasive that it would dramatically restrict the extent to which 
nonprofit organizations receiving Federal monies could participate in 
the public policy-making process. In operation, proposed A-122 would 
have the effect not only of restricting the use of government funds for 
political advocacy purposes but also would restrict the use of non- 
federal funds. 

The proposed revision, especially regarding the definition of political 
advocacy, appears to be excessive in several respects. First, the re- 
vision is proposed without documentation of substantial abuse in use of 
public funds for political advocacy by nonprofit organizations. Addi- 
tionally, current law and the Internal Revenue Code contain restrictions 
on lobbying and political activity which adequately protect the public's 
interest. 



A nonprofit educalional association serving sludenls. schools, and colleges through programs designed to expand educational opportunity 



394 



Finally, the Office of Management and Budget may lack the statutory 
authority required to impose the proposed restrictions and such re- 
strictions may be in violation of First Amendment constitutional 
rights. 

A-122 as proposed would significantly hinder a nonprofit organization's 
ability to deliver service and thereby would not work in the public's 
interest. 

We urge you to consider withdrawal of Circular A-122. 

Sincerely, 




Georg 
President 



GHH:lt 



395 

COUNCIL OF DEFENSE AND SPACE INDUSTRY ASSOCIATIONS (CODSIA) 



1612 K Street, N.W., Suite 1100 
WASHINGTON, DC. 20006 

(202) 331-8050 

March 1 , 1983 



Mr. John J. Lordan 

Chief, Financial Management Branch 
Office of Management and Budget 
Washington, D. C. 20503 

Dear Mr. Lordan: 

The undersigned member associations of the Council of Defense and 
Space Industry Associations (CODSIA) take this opportunity to 
comment on the 0MB Release (0MB 84-10 dated January 20, dealing 
with "political advocacy," and the documents which implement the 
stated changes; i.e., the revisions of Circular A-122, dealing 
with non-profit organizations and the proposed changes in con- 
tracting regulations announced by the major contracting agencies. 

CODSIA was formed in 1961 by industry associations having common 
interests in the defense and space fields. The Department of 
Defense encouraged the formation of this organization as a vehicle 
for obtaining broad industry reactions to new or revised regula- 
tions and similar matters. CODSIA is composed of six 
associations, the National Security Industrial Association, the 
Aerospace Industries Association, the Motor Vehicle Manufacturers 
Association, the Shipbuilders Council of America, the Electronic 
Industries Association, and the Amercian Electronics Association. 
They represent approximately 3,000 large and small member firms 
across the nation. 

On March 1, 1983, in hearings before the Subcommittee on Legisla- 
tion and National Security of the House Government Operations 
Committee, the 0MB, represented by Mr. Joseph Wright, acknowledged 
substantive deficiencies in the proposed revisions as originally 
presented and the need for revision. In this regard, senior mem- 
bers of the Subcommittee strongly urged that any further action in 
this matter be after judicious study of the alleged problem fol- 
lowed by appropriate public hearings and participation by all 
affected parties. 



20-644 0-83 26 



396 



It is our considered opinion that the proposed changes in the long 
term will adversely impact the national security, and further are 
unjustified by evidence or need and produce an unreasonable, and 
punitive result. We submit that the proposal should be withdrawn 
because: 

o The definition of political advocacy is vague and 
broad, overreaches existing law, and places an 
unreasonable burden on contractors. 

o The broad and vague definition of political advo- 
cacy would imply that most marketing activities 
are included in the category of disallowed costs. 

o The definition of political advocacy improperly 
includes communication with any legislative body 
or government official, including the state and 
local levels. Thus, a local plant manager's 
effort to solve a tax problem with the city 
council would automatically result in his annual 
salary being disallowed as a cost of doing 
business . 

o Contacts with Rule-Making and Policy-Making offi- 
cials are not political advocacy and the defini- 
tion of political advocacy would erroneously 
restrict or preclude communications needed by the 
government . 

o It impedes essential communications required be- 
tween government and industry, and punishes those 
who do business with the government. 

o It establishes a "contamination" (all or none) 
test of political involvement that is imprac- 
tical, discriminatory and unfair. By attempting 
to create a physical wall of separation between 
the activities of political advocacy and the 
activities of performing a contract it would 
unjustly enrich the government by denying reim- 
bursement for any of the work of an employee, 991 
of whose time had been productively spent in 
support of a contract and 1$ in political 
advocacy. 

o A contractor is penalized by being required to 
physically separate the personnel, building and 
equipment used in contract work from those 
employed in any degree for political advocacy. 



397 



The far-reaching concepts of cost disallowance 
are punitive in nature and unjustifiably restrict 
the exercise of constitutionally guaranteed 
rights. The concepts will inhibit advocacy by 
business and trade groups to the advantage of 
those interests, many foreign and domestic, which 
oppose them in the political arena. 

It conflicts with the 1962 Revenue Act which 
allows most lobbying and other political advocacy 
on matters of direct ^interest to a taxpayer to be 
deductible business expenses. The Revenue Act 
recognizes the necessity for business to communi- 
cate with legislators. 

It imposes limitations on uses of appropriated 
funds beyond those imposed by the DoD and other 
Appropriations Acts. 

The many fundamental differences between "for- 
profit" and "non-profit" organizations preclude 
the fair and reasonable application to both of 
the same cost principles. 

It will have a devastating effect on smaller 
businesses, since they are especially vulnerable 
to absorbing costs of doing business with the 
government . 



These concepts are directly in 


conflict with 


major policy statements 


contained in the Federal 


Procurement Policy Decl 


aration 


of the Office of 


Federal Procurement Pol 


icy Act 


Amendments of 1979 


(P.L. 96-83), establish. 


ed to promote economy, 


efficiency and effectiveness in 


procurement of 


property and services. 


They are also directly in 


conflict with President 


Reagan ' 


s Executive Order 


12352 of March 17, 1982 


, entitl 


ed "Federal 


Procurement Reforms." 


Finally , 


the Reagan 


administration's goal o 


f deregi 


ilation and the 


associated need for add 


itional 


communication is 


being abandoned by this 


propose 


il of "overregula- 


tion ." 







If adopted, these changes would materially affect the national 
security interests of the United States, and would increase costs 
of defense programs by reducing the free flow of information 
necessary to the interests of the Unitd States, reducing compe- 
tition, discouraging participation in the defense mobilization 
base, and limiting capital available for investment in product- 
ivity enhancement. 



398 



The attached statement sets forth detailed comments on the pro- 
posal as initially presented. Although we have additional areas 
of objection that could be discussed, we respectfully urge that on 
the basis of our statement the proposal be withdrawn and that no 
further action on revisions to A-122 or the cost principles be 
taken by OMB, DoD, GSA, or NASA. 

Sincerely,- 
Wallace H. Robinson, Jr. ' Karl G. Harr, Jr. 



Wallace H 
President 

National Security Industrial 
Assn . 

\ 



Karl G. Harr, Jr. 

President 

Aerospace Industries Association 





L d a n Br i n 1 Av_ 
:or Vehicle Manufacturers/ 
Assn . 




Edwin M--/.:-e«-d— 

President 

Shipbuilders Council of America 



•^ 



/£/.C • -ff£e.'-mi,-L- 



Jean A. Caffiaux 

Vice President 

Electronic Industries Assn. 




Kenneth C. 0. Hagerf 
American Electronics Assn. 



399 



COUNClt. OF DEFENSE AND SPACE INDUSTRY ASSOCIATIONS (CODSIA) 

'. 1612 K Street, N.W., Suite 1100 
WASHINGTON, D.C. 20006 

• 

(202)331-8050 

Statement on 

proposed Revision to OMB Circular i\_i22 

and the proposed changes in Contracting Regulations 

This statement provides the response of the designated Associations of 
the Council of Defense and Space Industry A^sbciat i ons (CODSIA) to the 
proposed revisions to Circular A-122 and cost priri c ipi es affecting all 
government contractors. 

CODSIA is composed of six associations, the National Security In- 
dustrial Association, the Aerospace Industries Ass oc i a tion, the Motor 
Vehicle Manufacturers Association, the Shipbuilders Council of America, 
the Electronic Industries Association, and the Auifc,-i can Electronics 
Association. They represent approximately 3,000 ) 3r ge and small member 
firms across the nation, all having common interests i n defense and 
space fields. CODSIA was formed in 1964 as a vehi i_ e f or providing to 
government broad industry reaction to new or revised regulations. 

The definition of political advocacy is based upon an erroneous 
premise. A-122 and a letter on this subject recently received from the 
office of the Deputy Under Secretary of Defense sta tej "The definition 
of political advocacy is derived generally from th g internal Revenue 
Code, 26 USC 1911." Under that Section of the Cod e an excise tax is 
imposed on certain public charities which make exo„ 5S expenditures for 
lobbying activities during the tax year. This section was promulgated 
exclusively for application to public charitable O|-g an izations • To use 
this section as a basis for the definition of "political advocacy" 
applicable to government contractors, business leases, or trade 
associations is beyond comprehension. Trade associations are governed 
by Section 501(c)(6) and have their own definition f lobbying under 
the IRC. Government contractors cannot logically De subjected to 
regulations on political advocacy intended for the conduct of public 
charities. Applying this faulty logic, the concepts f political 
advocacy under the OMB proposal produce impracticable, vague, and 
punitive conclusions. In addition, the several cc, jr t decisions cited 
as the basis for the proposed circular bear no reliance t o the 
activities of for-profit government contractors. 

E xecutive Summary 

The member associations of CODSIA submit that the proposal should be 
withdrawn in its entirety because: 

o The definition of political advocacy is vague and 
broad, overreaches existing law, and plb ce s an un- 
reasonable burden on contractors. 

o The broad and vague definition of politi oa i advo- 
cacy would imply that most marketing activities are 
included in the category of disallowed '- os ts. 



400 



The definition of political advocacy improperly 
includes communication with any legislative body or 
government official, including the state and local 
levels. Thus, a local plant manager's effort to 
solve a tax problem with the city council would 
automatically result in his annual salary being 
disallowed as a cost of doing business. 

Contacts with Rule-Making and Policy-Making offi- 
cials are not political advocacy and the definition 
of political advocacy would erroneously restrict or 
preclude communications needed by the government. 

It impedes essential communications required be- 
tween government and industry, and punishes those 
who do business with the government . 

It establishes a "contamination" (all or none) test 
of political involvement that is impractical, dis- 
criminatory and unfair. By attempting to create a 
physical wall of separation between the activities 
of political advocacy and the activities of per- 
forming a contract it would unjustly enrich the 
government by denying reimbur sement for any of the 
work of an employee, 99% of whose time had been 
productively spent in support of a contract and 1% 
in political advocacy. 

A contractor is penalized by being required to''- 
physically separate the personnel, building and 
equipment used in contract work from those employed 
in any degree for political advocacy. 

The far-reaching concepts of cost disallowance are 
punitive in nature and unjustifiably restrict the 
exercise of constitutionally guaranteed rights. 
These concepts will inhibit advocacy by business 
and trade groups to the advantage of those in- 
terests, many foreign and domestic, which oppose 
them in the political arena. 

It conflicts with the 1962 Revenue Act which allows 
most lobbying and other political advocacy on 
matters of direct interest to a taxpayer to be de- 
ductible business expenses. The Revenue Act rec- 
ognizes the necessity for business to communicate 
with legislators. 

It imposes limitations on uses of appropriated . 
funds beyond those imposed by the DoD and other 
Appropriations Acts. 

The many fundamental differences between "for-pro- 
fit" and "non-profit" organizations preclude the 



401 



fair and reasonable application to both of the same 
cost principles. 

o It will have a devastating effect on smaller busi- 
nesses, since they are especially vulnerable to ab- 
sorbing costs of doing business with the govern- 
ment . 

o These concepts are directly in conflict with major 
policy statements contained in the Federal Pro- 
curement Policy Declaration of the Office of 
Federal Procurement Policy Act Amendments of 1979 
(P.L. 96-83)i established to promote economy, effi- 
ciency and effectiveness in procurement of property 
and services. They are also directly in conflict 
with President Reagan's Executive Order 12352 of 
March 17, 1982, entitled "Federal Procurement 
Reforms." Finally, the Reagan administration's 
goal of deregulation and the associated need for 
additional communication is being abandoned by this 
proposal of "overr egulation . " 

The cost of any activity undertaken must be included in the price 
charged by the business for its goods and services. If the cost is not 
recovered in pricing contracts to which it must be allocated, profit 
degradation will result. The activity will necessarily be impaired and 
the uses for profit such as investment in improved productivity, plant 
modernization, and competitive parity curtailed. 

Cost principles should recognize as allowable all normal and necessary 
costs of doing business. This was recognized by the Executive Office 
of the President, the Office of Management and Budget and the Office of 
Federal Procurement Policy less than a year ago in the Proposa l for a 
Unif orm Federal Procurem e nt Syst em at Page 25: 

"Present cost principles will be reviewed with the ob- 
jective of allowing all normal and necessary costs of 
doing business. The cost principles will recognize that 
the disallowance of necessary costs erodes contractor 
profits. This in turn reduces competition. The only 
unallowable costs should be those which are against 
public policy." 

Thus, the underlying issues are whether the activities being labeled 
"political advocacy" are contrary to public policy, and, if so, how 
those costs are to be defined and identified. 

1 . COSTS NECESSARY TO THE US UA L_ CON DUCT OF BUSI NESS SHOULD NOT BE 
CONSIDERED CONTRARY TO PUBLIC POLICY. 



The proposed definition of "political advocacy" is extremely vague and 
broad and encompasses many activities not previously considered "lob- 
bying". This new definition overreaches both the letter and intent of 
existing law and places an unreasonable and punitive burden on com- 



402 



panies doing business with the government. 

1 . 1 Hos t Element s o f "Politica l Advocacy" are Norma l Cost s of D oing 
Business and Should be Allowable if the y ar e tax Deductible . 

Communications between Government and industry are essential to the 
proper conduct of business both by Government and by industry. Even 
where these communications are intended to influence opinions, they 
often convey needed information. 

In the report of the Investigations Subcommittee of the House Committee 
on Armed Services dated December 30, 1982, Congressman Samuel S. 
Stratton stated forcefully the need to protect Government/Industry 
exchange of information and opinion: • 

Without information provided by the Air Force and the 
Department of Defense, as well as the contractors in- 
volved, Congress would be unable to make an informed 
choice . 

To impair this flow of technical information, by either 
the Department of Defense or the contractors, . . . will 
dsrnage the national interest and conflict with the ad- 
monitions of the Founding Fathers. 

DoD has stated that discussions by Federal agencies and their contrac- 
tors on such important matters of mutual interest occur routinely 
throughout the government and are necessary for the very functioning of 
government. ■ ~~- 

No regulation should interfere with the exchange of necessary 
information between the Government and those who would do business with 
the Government. The proposed regulation grossly interferes with this 
exchange and creates a disincentive and penalty for doing business with 
the Government. 



The subject of what costs of the Government/Business information ex- 
change should be recognized as necessary business costs has been the 
subject of considerable debate for many years. Congress and the IRS 
have answered this question in the Revenue Act of 1962 and the imple- 
menting Treasury regulations. 

In that Act, Congress recognized that in order for a business to 
function efficiently in today's economy, it must be able to monitor 
legislative developments carefully, include thera in its plans for doing 
business, and communicate its views on such legislation to Congress and 
state governments. That Revenue Act created a specific deduction for 
political advocacy in Section 162(e) of the Internal Revenue Code and 
eliminated the confusion caused by then-existing regul ations. which 
sought to distinguish between regular business expenses and legislative 
efforts. 

The proposed modifications would reverse the progress made in the 1962 
Revenue Act by requiring government contractors to attempt the con- 



403 



fusing and burdensome task of determining what corporate resources can 
be devoted to any form of government relations without risking dis- 
allowance of the entire cost of those resources under Federal con- 
tracts. This is precisely what Congress sought to avoid in the 1962 
Revenue Act. Congress said: 

"It is also desirable that taxpayers who have informa- 
tion bearing on the impact of present laws, or proposed 
legislation, on their trades or businesses not be d is- 
cou ra ged in making this information available to Members ■ 
of Congress or legislators at other levels of Govern- 
ment." (Emphasis Edded.) 1962 U.S. Code Con g . & Ad. 
News at 3325. House Report No. 1W7, 57th Congress, 2nd 
Session, pg. 17, Senate Committee on Finance, Senate 
Report No. 1881, 87th Congress, 2nd Session, pg. 22. 

The Treasury Department regulations provide that legislation is deemed 
to be of direct interest to a taxpayer if the legislation is of such a 
nature that it will, or may reasonably be expected to, affect the trade 
or business of the taxpayer. If legislation has such a relationship to 
a trade or business that the expenses of any appearance or communica- 
tion in connection with it meet the ordinary and necessary test then 
such legislation usually meets the "direct interest" test. 

The following are pertinent examples of legislation recognized in 
Treasury Department regulations which meet the direct interest test so 
as to be deductible as a business expense: 

(a) Legislation which would increase or decrease 
the taxes applicable to the trade or business. 

(b) Legislation which would increase or decrease 
the operating costs or earnings of the trade 
or business. 

(c) Legislation which would increase or decrease 
the administrative burdens connected with the 
trade or business. 



(d) Legislation which uould favorably or adversely 
affect business of a competitor so as to 
affect the taxpayer's competitive position. 

Congress also established in the 1962 Revenue Act reasonable limita- 
tions on the deductibility of lobbying expenses, such as: 

"(2) L imitation . — The provisions of paragraph (1) shall 
not be construed as allowing the deduction of any amount 
paid or incurred (whether by way of contribution, gift 
or otherwise) — 

"(A) for participation in, or intervention in, any 
political campaign on behalf of any candidate for 
public office, or 



404 



"(B) in connection with any attempt to influence 
the general public, or segments thereof, with 
respect to legislative matters, elections, or 
referendums." IRC sec . 1 62(e) (2) 

There is indeed a difference between activities to inform Congress on 
legislative matters of direct interest to a contractor's well-being and 
the grass roots activities and political campaigning referred to in 
Internal Revenue Code, Section 162(e)(2). If the Administration de- 
sires to disallow the latter costs and still' not choke off appropriate 
communications with the Congress, it would be well advised to follow 
the IRS regulations which were adopted under the Revenue Act of 1962. 

1 .2 Regulat ions Defining "Politic al Advocacy" Should Not Ircpo.e 
Limita tions Beyon d Those Di rect ed by fJ o ngr ess . 

Congress has stated in the FY'83 DoD Appropriations Act that: 

"I.'one of the funds made available by this Act shall be 
used in any way directly, or indirectly, to influence 
congressional action on any legislation or appropriation 
matters pending before Congress." (PL-97-377 Sect. 
796). 

Congress has thus prohibited the Defense Department from spending 
appropriated funds to hire anyone to lobby the Congress or to organize 
the general public in grassroots lobbying. It has imposed no other 
restriction on the use of appropriated funds. 

These congressional restrictions are the broadest which should be 
imposed upon cost allowability by 0MB or DoD. The symmetry between the 
Internal Revenue Code limits on business deductions and the limits 
imposed on Defense Department expenditures is no coincidence. However, 
most of the broad categories of costs to be disallowed under the pro- 
posed changes cannot be found within the restrictions imposed by 
Congress. The revisions would. include in "lobbying" many forms of 
government-industry interactions which have never before been included 
in any statute or regulation governing lobbying. 

The best example is the Federal Regulation of Lobbying Act, 2 U.S.C. 
sec. 261 et. seq. (1916). That statute requires lobbyists to regis- 
ter, identify their constituents, and report quarterly on their activi- 
ties and expenditures. Lobbyists are defined to be persons paid to in- 
fluence the federal legislative process. 2 U.S.C. sec. 267. No one 
seeking to influence any action of the executive branch is covered, re- 
gardless of whether the relevant executive branch action is rule 
making, formulation of policy or licensing. No person or business is 
recognized to be "lobbying" by virtue of membership in a trade asso- 
ciation. The law thus defines lobbying in accord with its commonly 
accepted meaning, that is, direct communication with members of 
Congress on pending or proposed federal legislation. U.S. v. Harri s , 
3^7 U.S. 612 (1951). 



405 



While Congress 


has bai 


lobbying of the U.S. 
not barred payment fo 


local official 
intended to do 


s, or t; 
so, it 


the use of app 
Congressional 


ropriat 
policy 


gulations. In summar 
tions of allowability 


problem which 


may res 



THE "ON/OFF" TEST 
CLOSELY-REGULATED 



rred the Department of Defense from funding 
Congress either directly or indirectly, it has 
r contact with the executive branch, state or 
rade association memberships. Had Congress 

would have enacted far broader restrictions on 
ed funds. It having declined to do so, 
should not be overreached by the proposed re- 
y, Congress has already spoken on these limita- 

and dealt appropriately and effectively with any 
ult from "political advocacy". 

OF POLIT ICAL I NVOLVMENT IS UNREASONABLE IN TODAY'S 
BUSINESS WORLD" 



The stated 


inte 


physical an 


d or 


ties consid 


ered 


for performing 


state and 1 


ocal 


proach to b 


efor 


nature of activ 


identified 


in a* 


tion may be 


req 


ges in the 


many 


fecting his 


bus 



nt of the dr 
ganizational 

to be polit 
a contract. 

law preclud 
e-the-fact s 
ities consid 
dvance of ne 
uired . ' No c 

environment 
iness . 



afters of the pr 

"walls of separ 

ical advocacy an 

The constantly 
es this simplist 
eparation of act 
ered to be polit 
ed nor can the i 
ontractor can an 
al, contractual, 



oposed 
ation" 
d the a 
evolvi n 
i c "bin 
ivities 
ical ad 
ndividu 
ticipat 
or tax 



changes 
between 
ctivitie 
g nature 
ary" or 

The e 

vocacy c 

als whos 

e the fr 

regulat 



is to create 
the activi- 
s required 
of Federal, 
"on/off" ap- 
xtent and 
an not be 
e participa- 
equent chan- 
ions af- 



The argument that "physical separation" could preclude audit sur- 
veillance and after-the-fact questioning is completely mistaken. The 
opportunities for audit and investigation throughout the many activi- 
ties of contractors impacted by these proposals will be multiplied. 
Every aspect of contract performance and contractor activity will be 
open to investigation for some taint of "political advocacy" which 
could disallow the entire annual cost of the people, equipment and 
facilities involved in the performance of the government contracts. 

The proposal states that the salary costs of individuals are unallow- 
able if the work of such individuals includes any amount of political 
advocacy. Other cost principles set aside only the applicable portion 
of the cost of activities deemed unallowable. This proposal is all- 
encompassing, so that any activity declared unallowable renders the 
whole activity unallowable and the entire salary cost of the individual 
is unallowable for the year. 

An example of the effect of this proposal would be the denial of any 
reimbursement to a contractor for the work of an employee, 99% of whose 
time had been productively spent in support of a contract and 1* in 
political advocacy. The government would be unjustly enriched by the 
value of his work applied to the government contract, while the con- 
tractor is penalized for having participated in business related 
political activities. 

The penalty that a contractor incurs when he fails to physically 
separate the personnel, building, and equipment used in grant or 
contract work from those employed in whole or in part for political 



406 



advocacy is unconscionable. The government's interest in not sub- 
sidizing political advocacy cannot possibly justify the penalty of 
disallowance of clearly allocable, reasonable, and otherwise allowable 
costs of doing business incurred under a contract or grant and unre- 
lated to the political advocacy activities. 

Consider the result, under the proposed rules, of a corporation using 
its expensive computer resources to do work under a government contract 
as well as corporate work such as keeping payroll records and issuing 
checks. If the company has a Political Action Committee (PAC), and 
uses a payroll deduction plan to fund it automatically, the entire 
capital and non-capital costs of the computer would be disallowed, even 
though its "political" use takes only the smallest fraction of its 
productive time. m 



Neither the 


5% rul 


justif 


iable 


basis 


fundamental 


rul es 


year s . 


Many 


contra 


ision/ 


company offi 


pany o 


ffices are e 


poration or 


indivi 


ing, M 


anuf actur ing 


nance , 


Accounting , 


fairs , 


etc. 


The Ch 


cutive 


Vice 


Pr esid 


sident 


s are 


requir 


business, includin 


their 


fiduciary du 


execut 


ives can abs 


posal 


or assign th 


stand 


the duties a 


punitive to 


go fur 


makes 


one air trip 


annual 


cost 


of the 



e nor any other nr 
and must simply be 
of government cost 
ctors have a separ 
ces, and a Washing 
stablished to mana 
dual facility; i.e 
, Quality Assuranc 
Legal, Contracts 
ief Executive Offi 
ent, and the Divis 
ed to be involved 
g political advoca 
ty to their shareh 
tain from politica 
eir duty to others 
nd obligations of 
ther and state tha 
on a corporate ai 
plane and his sal 



bitrary percentage rule has any 
penal in nature. It disregards the 
principles developed over many 
ate corporate offipe, several div- 
ton office. The corporate and com- 
ge the -entire operation of the cor- 

Industrial Relations, Engineer- 
e, Scientists, Procurement, Fi- 
and Pricing, Marketing, Public Af- 
cer (CEO), the President, the Exe- 
ion General Managers/Company Pre- 
in every aspect of the company's 
cy. If they are not, they violate 
olders. To suggest that high-level 
1 advocacy as defined in the pro- 
, is to admit one does not under- 
a business executive. It is simply 
t if a CEO or any other employee 
rcraft for political advocacy, the 
ary is unallowable. 



Under current procedure which is simple, understood, and effective, if 
unallowable costs are incurred, the Corporation/Company or division, or 
Washington office facility can then segregate unallowable expenses and 
continue to allocate properly allowable costs. Existing law and regula- 
tion (cost accounting standards) adequately protect the Government's 
interest. There is no justification for application of a "contamina- 
tion" test to any one individual or any category of costs. 



Under t 
an empl 
formanc 
vocacy 
er-empl 
tionshi 
1 itical 
inducem 
activ it 
the law 



he "contamination" principle, disallowing the annual salary of 
oyee whose time may be devoted exclusively to the direct per- 
e of a contract because he was induced to contribute to an ad- 
association, such as a PAC, is an attempt to regulate employ- 
oyee relationships through cost disallowance which has no rela- 
p whatsoever to whether any government funds are involved in po- 

advocacy. If an employee is subjected to an inappropriate 
ent with respect to contributions or other infringements on his 
ies away from the job, he already has adequate remedies under 



407 



3. POLITI CAL ADVOCACY -SHOULD EXCLUDE MARKETING, _ALL_ LEGISLATIVE 
LlTlSON, I NTERACT ION WITH STATE AND LOCA'L GOVERNMENTS, AND 
FULE-MAKING AND PO LICY M AKI'NG. ■ 

The total function of marketing should be :.pecif ically excluded from 
the definitions of political advocacy. Marketing is an attempt to sell 
a product or service to a customer, which includes applying or making a 
proposal or bid in connection with a grant, contract, unsolicited pro- 
posal, or other agreement, or providing information in connection with 
such proposal or bid, or providing a regular dialogue and exchange of 
data and information for the purposes of developing solutions to future 
requirements, and identifying new requirements that can be satisfied by 
existing product lines. Clearly, marketing bears no relationship to 
political advocacy. ' • . 

In addition, actions or decisions related to the administration of the 
specific gr?nt, contract or agreement involved, actions necessary for 
the delivery of the product to the government, and actions benefiting 
the safety and general welfare of the community involved with the 
specific grant, contract or agreement could fall within the broad and 
vague definition of political advocacy. 

The vague definition of political advocacy could be interpreted to in- 
clude legislative liaison. Normal legislative liaison activities such 
as the gathering of information on pending legislation, status and in- 
terpretations of legislation, analysis of the effect of pending legis- 
lation, and attendance at hearings should not result in unallowable 
costs. The government contract cost principles should be consistent 
with existing legislation on this subject. It is noted that Senator 
Pryor, who has in the past proposed that lobbying costs be prohibited, 
excluded legislative liaison activities from his definition of 
lobbying . 

"While lobbying may be conceived as somewhat broad, 
certain activities are excluded from the definition, 
such as the following: communications made in response 
to a request from a Member of Congress; passive atten- 
dance at legislative proceedings, that is, attendance 
without engaging is (sic) prohibited lobbying activi- 
ties; nonpaid communications made through public infor- 
mation channels; and inquiries made regarding the exis- 
tence or status of legislation. We believe that all 
necessary business expenses recognized unier the tax 
code should be allowed except those precluded by the 
Appropriations Act." (Congressional Record, Nov. 30, 
1981 , S 14112). 

In the proposal "political advocacy" includes activity that attempts to 
influence governmental decisions through communication with any member 
of a legislative body or with any governmental official or em_ploy_ee_ who 
may participate in the decision-making process, and includes activity 
at the state and local levels of government. There are innumerable 
activities conducted by companies of our member associations at the 



408 



federal, state and local level which have as their desired result the 
more efficient and less costly operation of the plant or offices in 
that jurisdiction. Those activities are normal, reasonable actions 
which a prudent businessman must take in the conduct of his business 
and in fact are required in the performance of contracts with the 
government. 

In every state, contractor representatives communicate with and testify 
before state legislative committees, municipal councils, zoning boards, 




these activities would be subject to classification as political advo- 
cacy. " 

The incidence of these activities and the identity of the persons and 
facilities involved cannot be predicted nor can they be limited to a 
"separated" activity. 

The total effect of such activities is to improve the overall effici- 
ency of the plant or office and minimize its overall cost of operation, 
the benefit of which is passed on to the government and other customers 
in accordance with the cost allocation system for those activities. 
For the government to require and promote on the one hand efficiencies 
and cost control and on the other hand to deny the allowability of 
costs to achieve them is incongruous and self-defeating. 

Finally, suppliers to the Federal Government necessarily must interface 
with "agencies of the Executive Branch of government. Many ,-gencies of 
the Executive Branch are not subject to the Administrative Procedures 
Act and are not required to give notice and a period of time to comment 
on any proposed rule or policy. With this in mind, for the proposal to 
make unallowable costs of participating in any rule-making or 
policy-making activity that is not requested is totally unreasonable. 
Without a direct connection to the influencing of elections or 
political fund raising activities, none of such activities with the 
Executive Branch relating to matters of direct interest should be 
considered political advocacy. 

i| . SMALLER BUSINESSES WILL BE PENALIZED HOST HARSHLY 

We believe that the proposed regulations would have a particularly 
devastating effect on small businesses substantially involved in gov- 
ernment procurement. For many businesses, the salary of individuals 
engaged in "political advocacy" could exceed the profits of the entire 
organization. It is not enough to say that they may "choose" not to 
participate in advocacy as some "advocacy" is necessary to the conduct 
of any business. They may simply be precluded from doing business with 
the Government. 

5 . THE SEPARATION OF PRIVATE AND PUBLIC FUNDS 

We regard as invalid the premise that federal funds are used by con- 



409 



trsctors for political advocacy. Money spent by federal contractors 
has never been treated as a federal expenditure. The separation of 
public and private funds is an essential element of government procure- 
ment law which is premised on use of the private sector as the most 
economical, efficient and effective neans for obtaining goods and ser- 
vices. The importance of preserving this separation was noted recently 
by the Department of Defense in denying General Accounting office 
allegations that DoD payments to contractors were illpgal because of 
limitations in an appropriations Act on the use of appropriated . funds 
for certain kinds of political activity. The DoD stated that payments 
were made for goods and services and not for" activities, even though 
the payments were calculated by reference to costs incurred by the 
contractors. Federal funds paid to a contractor do not retain their 
identity when spent by a contractor. 

6. PARTICIPATION IN TRADE ASSOCIATIONS SHOULD JOT_RESULT _IN DISALLOWED 
COSTS 

The Executive agencies would be denied the use of hundreds of technical 
experts who now work problems as members of working committees of the 
various trade associations because their activities may be "contamina- 
ted" under the vague definition of political advocacy. It is apparent 
that this proposal actually disregards the value received by the Exec- 
utive agencies under the present allowability principles. 

7. THE PROPOSAL CONFLICTS WITH OFFICE OF FED ERAL PROCUREMENT P OLICY 
ACT AM ENDMENTS OF 1979, PRESIDENT REAGAN'S EXECUTIVE ORD ER" 12352 , 
A ND THE ADMINISTRATION'S" GOAL OF DEREGULATION. 

When the proposed concepts are applied to Federal procurement, they 
would directly impair seven out of the twelve Policy Statements 
contained in the "Declaration of Policy" enacted into law under the 
Office of Federal Procurment Policy Act Amendments of 1979, P.L. 96-83 • 
They would impede the basic policy of Congress to promote economy, 
efficiency and effectiveness in the procurement of property and 
services, as follows: 

1. They would decrease rather than promote full compe- 
tition in procurement. 

2. They would impair rather than improve the quality, 
efficiency, economy, and per forinance of Government 
procurement organizations and personnel. 

3. They would add rather than eliminate inconsistencies 
in procurement laws, regulations, directives and 
other laws, etc., relating to procurement. 

4. They would add enormous complexity rather than 
greater simplicity throughout procurement. 

5. They would impede rather than promote economy, effi- 
ciency, and effectiveness throughout Government pro- 
curement organizations and operations. 

6. They would greatly increase instead of minimizing 
disruptive effects of Government procurement on 
particular industries, areas, of occupations. 

7. And finally, they would destroy rather than promote 



410 



fair dealing and equitable relationships smong the 
parties in Government contracting. 

The proposed concepts would also impair rather than promote the 
"Federal Procurement Reforms" required by President Reagan's Executive 
Order 12352 of March 17, 1982. Specifically, they would conflict with 
the portion of Section 1(a), which directs the establishment of pro- 
grams to reduce administrative costs and other burdens imposed through 
the procurement function on the Federal Government and the private 
sector. In addition, it would directly conflict with the provisions of 
Section 1(a), which direct that private sector views on needed changes 
to regulations, paperwork, solicitation provisions, contract clauses, 
certifications, and other administrative procedures should be solici- 
ted. The concepts are also directly in conflict with President 
Reagan's direction in Section 1(d) to establish a number of criteria 
which would enhance effective competition. Among these criteria are 
providing greater latitude for private sector response in the process 
of establishing and describing Government needs. 

The Reagan administration's goal of deregulation is coromendable: How- 
ever, this proposal will stifle, or at least restrict, the additional 
communication that is required under any deregulation program. This 
proposal is "overr egulation" at its worst and is contrary to the admin- 
istration's policy of reducing administrative burdens and regulatory 
control . 

8. THE PROPOSAL MAY PRES ENT AN UNCONSTITUTIONAL PRECLUSION OF 

POLITICA L ACTIVITY , AND IS THERE FORE I TSELF CONTRARY TO PUBLIC 
POLICY . " - - — ; ; ■• 

The proposal, notwithstanding the Summary Statements and Questions and 
Answers accompanying the 0MB release, gives rise to several constitu- 
tional issues. True, the proposal purports to not prohibit political 
advocacy; however, its far-reaching and punitive concepts of cost dis- 
allowance have that very effect. For example, the proposed revisions 
will inhibit political advocacy by businesses and trade groups to the 
advantage of many interests, both foreign and domestic, which oppose 
them in the political arena. The rights of businesses under both the 
First and Fifth Amendments are thus placed in jeopardy. 

Companies which do not do business with the government, as well as many 
public interest groups and all labor unions, suffer no inhibition to 
their ability to recover the costs of political advocacy from their 
customers, members or clients. Foreign governments or others who 
attempt to influence U.S. legislation and policy will suffer no such 
inhibition. Government contractors, on the other hand, will, in 
effect, pay a substantial "penalty" on their political advocacy by 
being unable to apportion any part of otherwise allowable costs to 
government contracts. This "penalty" on political advocacy is a res- 
triction on a businessman's First Amendment right to be heard publicly. 

Vorse still, the regulations effectively preclude businesses from 
engaging in certain political activities. Despite the stated intent 
not to preclude business from lobbying, the denial of cost recovery 



411 



will frequently have that effect. It is submitted that the new 
regulations will impose an unconstitutional burden upon businesses' 
ability to associate and to petition their Federal, state and local 

governments . 

CONCLUSION 



We do not believe there 
applying the cost princi 
organizations to "for pr 
identical and specifical 
organizations and the na 
regulation show congress 
activities by providing 
specific 1 imitations on 
thus should be recognize 
government . 



is any justification or deiaonstr ated need for 
pies applicable to non-profit and tax exempt 
ofit" firms. The regulations currently are not 
ly recognize, the fundamental differences in the 
ture of their activities. Existing law and 
ional recognition of the need for advocacy 
tax deductibility for their costs and imposing 
them. They are not against public policy and 
d as allowable costs of doing business with the 



The 

cost 

inte 

able 

only 

any 

wher 

fit. 

stit 



proposed 

principl 

rests of 

pr actic 

appl icab 

corapensat 

e virtual 

The pro 

utionally 



revi sions 
es materia 
the United 
ally impos 
le to crim 
ion for th 
ly all of 
posal over 
guarantee 



to Circular 
lly and adv 
States, ar 
sible to ad 
inal activi 
e cost of p 
the cost is 
reaches con 
d rights. 



A-122 and th 
ersely affect 
e unreasonabl 
minister, and 
ties. They d 
ersonnel and 

incurred for 
gressional ac 
Th e r e f o r e , it 



e government contract 
the national security 

e, inherently inequit- 
provide for penalties 

eprive contractors of 

equipment in situations 
the Government's bene- 

tion and restricts con- 
should be withdrawn. 



Sincerely , 




Robinson, Jr 



Wallace H 
President 
National Security 
Ass 



/J/fa-l . 



Industrial 




Karl G. Harr, Jr. 

President 

Aerospace Industries Association 







Edwip—M.-yW-fo-o-d 

Presiden^ 

Shipbuilders Council of America 



fc 



M7k 



Jean A. Caffiaux 

Vice President 

Electronic Industries Assn. 




Kenneth C. 0. Hager"ty- // I 
American Electronics Assn. 




20-644 0—83- 



-27 



412 



TESTIMONY BY JOHN HOUSTON, EXECUTIVE DIRECTOR, THE FAIRNESS COMMITTEE 

My name is John Charles Houston. I am an attorney, and the Executive 
Director of the Fairness Committee Against Tax Funded Politics. 
The Fairness Committee is designed to serve as a focal point for the 
problems created by the abuse of federal dollars, whether done under color 
of law or not, to engage in political advocacy. 

lsy way of reference, the National Urban Institute estimates that over 
100,000 non-profit corporations receive federal grants and contracts each 
year which total over $40 billion dollars. A fair rule of thumb is that 
one third of those costs go to pay overhead, which would be around $14.3 
billion dollars. Approximately half of the overhead costs would be used 
for payroll or about $7.15 billion a year. The other half of that $14 billion 
goes to pay for copying machines, rent, computers, cars, gasoline, etc. 

While there have been a number of prohibitions passed into law, for- 
bidding the use of federal funds for lobbying by bureaucrats with federal 
funds, they do not address themselves to the florid political environment 
that has grown up in the abuse of federal funds. The abuse goes well 
beyond anything imagined by the Congress when it passed the current law in 
Sec. 1913, and includes using the job trainees to campaign for Presidential, 
Congressional, and local candidates, armed with computer printouts and 
assigned neighborhoods to work, orchestrated with the finesse of the best 
political machines. Other abuses include using federal funds to organize 
public employees into unions, funding grass roots training centers like the 
Midwest Academy, founded by the radical Saul Alinsky, and the Laurel Springs 
Institute, founded by Tom Hayden and Jane Fonda. 

Another example of pervasive abuse for political purposes occurs at 
this moment in Los Angeles, where one of the nation's largest so-called 



413 



'poverty agencies' is presently $36 million dollars short in unaccounted 
funds, and has been active in a wide variety of political endeavors, paid 
for by the federal tax payers. Yet, even as we speak, they may be asking 
for more federal grants and contracts, because there is no amount of waste, 
fraud, abuse, or political activism which under current law makes one ineli- 
gible to ask for more money to waste. To understand this issue, we have to 
draw back from the horror of individual cases, and focus on the structure 
of federal grants and contracts, which not only acknowledge this abuse, but 
in many ways encourage it. 

There are various ways to characterize the ostensible and real purposes 
for which Federal funds are requested. Most generally, the purpose is des- 
cribed breezily as for services to some supposedly disadvantaged sector of 
the population, whether the target is the homeless, women, those with cold 
homes, or the poor in general. However, members of Congress need to under- 
stand that there is an historical difference between charities, which pro- 
vide services to specific individuals, and political parties or factions, 
which lobby the recipients of these services. 

What we are talking about today is most often a hybrid of the traditional 
ward heeler and block captain of the political precincts, using the language 
of charities. It is our Committee's position that if tax-exempt organizations 
wish to provide services which are subsidized by the Federal taxpayer, then 
they should desist from engaging in political activity ostensibly in behalf 
of those they claim to serve. 

It took almost 100 years of the spoils system in the country before a 
Civil Service System erected a barrier between those making funding decisions 
and rank and file bureaucrats. Civil Service has become a hallowed legal 
protection against political exploitation by the politicians against underlings. 

It took almost another sixty years for the Hatch Act to be passed to 



414 



protect welfare recipients, and career bureaucrats from political exploita- 
tion for campaign purposes above and beyond the Civil Service laws. The 
unsightliness of welfare recipients being corralled on election day by 
sitting members of Congress and their campaigners was rejected in favor of 
the principle that personal political benefit should not flow from one's 
ability to confer benefits on the public. To do otherwise, is to sanction 
wholesale blackmail of the poor, the disadvantaged, the helpless, civil 
servants, and the voters. 

The vast increase in Federal expenditures in the last twenty years 
gives rise to a situation analogous to both of these abuses of the past. 
In conferring forty billion dollars a year on tax-exempt organizations, 
oomes enormous political influence which has and is now being wielded on 
behalf of very specific and highly motivated para-political organizations. 
Recipients of taxpayer largesse are being corralled just as the welfare 
recipients were in the 1930 's. They are being used for political duties 
not only on election day, but as a standing army for whatever demonstrations, 
lobbying, or letter writing that may be required. 

These abuses are well-documented in the press, and have become notorious. 
Because many members of Congress have benefitted from these activities, 
there has been no rush to regulate the political behavior of these organi- 
zations. But the time is long past when any fair-minded person can ignore 
the corrosive effects of maintaining the status quo. 

The Federal funding of political activists occurs through specific 
programs tailored for a particular constituency. The fact that policy and 
political advocates are receiving funding is not incidental, it is the pri- 
mary purpose of the legislation. Payments are made for pre-determined poli- 
tical activity. In fact, any services provided to target populations are 
incidental to the overtly political nature of these activities which the 



415 



fund recipients are pursuing. No one but Congress can be responsible for 
such a result, and the public is increasingly aware of the nature of these 
programs. In fact, the public seems to be ahead of the Congress on this 
issue. 

One program which is tailored to subsidize a particular brand of poli- 
cies is the Women ' s Education Equity Act Program (WEEA) . WEEA is a perfect 
example of one of these programs. On the subject of WEEA, I would like to 
make several points. 

WEEA grants a total of about $6 million dollars a year, not large by 
federal standards. But too large for anyone who believes that the Federal 
Government has no business reaching into the market place of ideas and 
subsidizing the political activity of any faction in the ideological spectrum. 
A great deal of this money is going to fund the political activities of its 
own advisory board members and their organizations. The WEEA advisory coun- 
cil recently rejected a perfunctory conflict of interest resolution because 
it would interfere with present funding of some of its board members. 

A mere glance at the funding practices of WEEA demonstrates beyond any 
question that the real purpose of this program is to subsidize radical femi- 
nists. The paltry amount of "services and books" actually procurred could 
have been bought for a small fraction of the cost spent by WEEA. What we 
have here is a jobs program for radical feminists who are feeding at the 
Federal trough. Leaf raking for ideologues, as it were. 

I would encourage this committee to devote further time to this and 
other federal programs which were designed and created to subsidize propa- 
ganda for use on the American public. The public finds this practice 
repugnant, and would violently object to it if they understood it to be a 
standard practice in such programs. 

iiaving once established a comprehensive need for reform in this area, 



416 



I want to make some comments on the OMB Regulations A- 122. These regs 
have moved the political dialogue to an important new stage of discussing 
how to curb these abuses, not whether or not they are important enough to 
take up the time of the Congress or the White House. And once we understand 
that these abuses are pervasive, the need for comprehensive reform becomes 
necessary. For too long, each agency has had its own standards of political 
morality, ranging from none at all, to the whims of the present inhabitants. 
These regulations will require uniform standards which do not presently exist. 

Secondly, the regs establish a cost principle which few will argue with 
in principle, who are not presently feeding at the federal trough. That is, 
the allocated cost of personnel, and overhead which are involved in political 
behavior in the full blown scene which I have described will not be paid 
for by the taxpayer. Just like interest and advertising costs, grantees 
and contractors will no longer be able to bill the feds for their political 
behavior. My view is that political parties ought not be able to use public 
money in this fashion because of their inherent political biases, and the 
direct subsidy that results from being able to do so. By comparison, paro- 
chial schools for a long time have been forbidden to accept public subsidy 
for fear of creating government subsidy to their beliefs. If that doctrine 
holds Constitutional water in that case, I can see no reason why the Demo- 
cratic or Republican party, or any other party or faction ought to be able 
to receive federal funds. Such money is clearly tainted just as money to 
a parochial school would be. 

Thirdly, the regulations do not do enough to discourage bureaucrats 
who are tempted to bend and break the rules from subsidizing or buying poli- 
tical support for their pet programs through grants and contracts. Such 
conflicts of interest are rife, and are not addressed by these regulations. 
I think your constituents would be appalled to learn that millions of dollars 



417 



a year are given by bureaucrats with explicit instructions to the grantees 
to lobby other public officials, including the bureaucrats themselves. 
S. 3122 and H. R. 7299, introduced by Sen. Jepsen and Congressman Jeffries 
respectively, in the last Congress provided criminal penalties for both 
parties in such a transaction, and for persistant and willful abuse of fed- 
eral funds for proscribed political behavior. The bill also requires a self 
certification process which if violated, is the basis of disbarment. 

Fourth, the opponents of these regs have failed in their attempt to 
characterize them as an interferrence in their organizations' First Amend- 
ment rights. In fact, the opposite is true. These regs will prevent the 
First Amendment rights of the public frcm being impeded. It is the public 
that is paying for the political activity at issue here. And frequently, 
it is political activity which the public is not supportive of. And even 
if the public were supportive of some of it, the First Amendment is a two 
way street. It forbids the majority from imposing its beliefs on the minority 
through public subsidies to religion or political factions. That abuses 
have been accepted as routine in Washington, is merely a testimony to how 
out of tune Washington is with the rest of the Country. 

The regulations proposed by OMB are merely a starting point for cleaning 
out a political mess that has persisted for a number of years. But as the 
Supreme Court has observed, no mistake or indescretion can become hallowed 
by time if it violates the basic precepts of the Constitution. These abuses, 
much like their predecessors before the Civil Service System and the Hatch 
Act, are the tiresome but necessary duty of all those who believe that govern- 
ment cannot be either impartial or representative, until it is freed fron 
the petty and fractious corruption which is self-evident to even the most 
determined ostrich. 



418 



FEDERATION OF PROTESTANT WELFARE AGENCIES. INC. 

FPWA 



281 PARK AVENUE SOUTH / NEW YORK. NY. 10010 / (212) 777-4*00 



Mr, Hiram Q Blae* 

Sot. ■ - N Bozortty 

Mrs l- Cedeno 

Biu< MeCowan 

Mrs Jan,- >J Robbing 

j r-enry Sm'tti 

Vice- ''residents 

Mrs Pame<a L Lenns 

Secretary 

W.inam S Niven 

Treasurer 

Oa^O A Gardner 
Assurafl' T -eaiurer 



BOARD OF DtflECTOfiS 

R Palmer 3a»ei. Jr 

"e^e M Barren 

Mrs Margaret M Boyd 

Samuel T Bumeson 

Henry Oantngton Jr 

Mrs Howand 0av>5 

Richa'd a Debs 

Charles R D<c*unson 

James R Oumpson 

Mrs Barbara T weeO Estill 

Rev Can E F'emister 

Conrad A Ford 

James Foster 

Beriram F Frencn 

Marshall M Green 

ev Thomas P Gnssom Jr 

Harry 6 Heimsley 

George Henning 

Mrs Jui<a Honor 

laweii iberg 

Mrs J Morton ifams 

Benietey Jennson Jr 

Rev Micnae< ■> Kendall 

Edward S Lewis 



Josepn F McDonald 

John fl McG.niey 

VU.ii.arr> F May 

Mrs Palnoa G Monsey 

M-s Judy Guer.n de Neco 

Mrs James T Parkinson 111 

Edward A Pereli 

Ralph F'ew Peters 

RoOen L Popper 

Richardson Pratt. Jr 

Mrs Barta/a Scon Preisfcei 

Dongid M Roberts 

Mrs John E Roosevefl 

Chanes E Sa<Ltman 

Caroiyr E Setlow 

Mrs Phoebe R Sianton 

Henry Tang 

Freoenc* C Tanner 

Mrs Barta'a A Tnacher 

Hon Phillip B Thurston 

Jote iChequil T orres 

Rev jonn 0a»>0 Warren 

Royal 3 Whrtrng 

THE COUNCIL 



Frar.-.is L Blawer 

Mrs j CampoeJi Burton 

Mrs EdW 1 F Ch.niunO 

Mrs A Gooowin Cooke 

Mrs Rooen DeVeccrti 

Hon Florence M Ke+tey 

Leonard T Scully 

WViinarr = Tracer 

Mrs Juan T Tripp* 

Mrs Arrtflnci.se Wa*er 



Testimony of the 
FEDERATION OF PROTEST7OT WELFARE AGENCIES 
with respect to the 
Office of Management and Budget's 
Proposed Revision of Circular A-122 

March 4, 1983 



The Federation of Protestant Welfare Agencies, the only 
federation of Protestant and nonsectarian human services 
agencies in the nation, is a planning, consulting and coor- 
dinating body of approximately 250 member agencies in the 
New York City netropolitan area. The Federation and its 
member agencies annually serve more than one million needful 
people of all ages, races and faiths. 

The Federation welcomes the opportunity to testify on 
the Office of Management and Budget's proposed revisions to 
Circular A-122 which would establish harsh new rules to 
govern the advocacy efforts of nonprofit recipients of 
Federal funds. We strongly oppose the proposed revisions. 
We do so not because we believe that public money should be 
used for advocacy- Rather, our opposition results from our 
belief that existing statutes and regulations provide suffi- 
cient safeguards to insure that Federal funds are used solely 
for the purposes mandated by Congress. GMB's proposals will 
not provide a single new safeguard or a single more effective 
enforcement procedure to effectuate this purpose. They will 
succeed only in making it extremely difficult and prohibitive- 
ly expensive for nonprofit recipients of Federal funds to 
participate in the political process under any circumstances. 

Before discussing our specific objections, the Federation 
would like to note that our advocacy efforts will not be 



419 



directly affected by the proposed revisions. Our budget includes no Federal 
funds. We present testimony because of our strong conviction that nonprofit 
organizations which do accept Federal funds make an invaluable contribution 
to the formulation of constructive and informed public policy. We know this 
to be true for government programs in the human services area. 

Because the Federation is aware of the expertise of those engaged in 
providing direct services to the poor, the young and the elderly, we have 
encouraged our member agencies to participate in the political process. And, 
while we encourage participation, we also provide detailed information on the 
legal responsibilities of nonprofits who elect to engage in advocacy. We do 
not view such participation as adversarial or detrimental to the public good, 
a view which appears to be inherent in CMB's understanding of advocacy, but 
as a crucial ingredient in the formulation of sound public policy. 

The revisions to Circular A-122 are objectionable on a substantial 
number of counts. Rather than touch on all these points, the Federation 
would like to focus on three specific issues, these are: 

a. that the definition of "political advocacy" in the proposed 
revisions is so broad and so vague that it bars those with 
the most expertise in specific policy areas from contributing 
to sound public decisions in such areas; 

b. that the proposed revisions would make it extremely expensive 
and difficult for nonprofits to engage in any advocacy, 
despite the fact that only nonfederal funds are used for this 
purpose, and; 

c. that the legality and constitutionality of the proposed re- 
visions are questionable. 

DEFINITION OF POLITICAL ADVOCACY 

The OMB claims that its definition of "political advocacy" is based 
primarily on the definition used by the Internal Revenue Service to regulate 
advocacy in the nonprofit sector with certain minor "modifications". This 
explanation is totally misleading. The modifications provided by OMB would 
include in the term political advocacy a vast number of activities hereto- 
fore unaddressed by the Federal Government. 

Particularly troublesome is defining "political advocacy" to include 
initiating communication with elected officials and their staffs and with 
government officers and employees who participate in the decision making 
process. If adopted, this definition would preclude those with the most 
expertise in a particular area from using their knowledge to contribute to 
the formulation of public policy. Therefore, the Federation believes that 
OMB's proposals would be self-defeating for the Federal Government, and thus, 
of course, for the public as well. 

Federation member agencies engaged in providing day care, for example, 
could not communicate with Federal, State and local government officials 



420 



about perceived problems in day care programs. Equally, our agencies which 
provide meals to the elderly would be stopped from suggesting more efficient 
ways to provide food. Our examples, of course, could continue ad infinitum. 
The important point is that 0MB is proposing a system which would mute those 
willing and able to make important contributions to providing quality services 
to those in need. 

The prohibition on communication found in the 0MB 's definition of 
"political advocacy" becomes far more disturbing when understood in conjunc- 
tion with its definition of "governmental decision". The latter term applies 
to the formulation of rules and regulations, the development of program 
guidelines, the fixing of fees and rates and ultimately to "any administrative 
decision of general applicability". Incorporating such activities into a 
definition of "political advocacy" is not simply modifying TBS definitions; 
it is fundamentally altering the meaning of the term. 

In the vast majority of instances, formulating rules and regulations 
and establishing program guidelines are highly technical procedures and re- 
quire information which is known only to experts in a particular field. Again, 
who knows more about the provision of day care services than those engaged in 
providing such service? If implemented, the OMB regulation would require the 
Department of Health and Human Services to contact day care providers across 
the country each time it required information for a new rule or regulation or 
lose the value of their expertise altogether. Allowing servioe providers to 
initiate communication is a far more sensible alternative. In the end those 
who will suffer will be those in need and ultimately the general public who 
will bear the burden of policy implemented in a vacuum. 

B. USE OF FUNDS FOR ADVOCACY 

Whether intentionally or unintentionally, the OMB's proposals would 
erect insurmountable roadblocks for nonprofits accepting Federal funds to 
engage in advocacy, although only funding from other sources is used for this 
purpose. Established procedures provide nonprofits accepting Federal grants 
and contracts with feasible methods of segregating Federal and nonfederal 
monies. If the OMB proposals go into effect, such procedures will have no 
applicability. For example, nonprofit organizations are currently permitted 
to distinguish the portion of an employee's salary paid for from Federal 
sources from the portion funded from other sources. As such, a nonprofit or- 
ganization can use an employee to implement a government funded program and to 
perform whatever other necessary assignments are required by the organization. 
Under the OMB's proposals, however, a nonprofit employee whose salary was paid 
in part with Federal money would be barred from engaging in advocacy. Ihe 
OMB revisions would similarly preclude the use of office equipment for 
advocacy purposes if it had been paid for in part with Federal funds. In 
addition, OMB would prohibit a nonprofit accepting Federal funds from using 
more than 5% of its offioe space for advocacy purposes. 

Imposing restrictions of this severity on the nonprofit sector will 
have a devastating impact on the ability of nonprofit organizations to partic- 
ipate in the political process. The vast majority of nonprofit organizations 
providing services to those in need operate on extremely limited budgets. 



421 



Attempting to engage in advocacy in the manner required by CMB would impose 
an additional, crushing financial burden. At a practical level, a nonprofit 
recipient of Federal funds would need to hire a separate staff and rent or 
purchase separate office space and equipment to engage in advocacy. This, 
of course, is impossible. The CMB is actually requiring nonprofits to choose 
between providing services or taking positions on public policy questions 
directly affecting the services they provide. Attempting to force such a 
choice is highly unwise and unnecessary. 

LEGALITY AND (XNSTTTUTICNALITY OF PROPOSED REVISIONS 

We believe that the CMB's proposed revisions to Circular A-122 raise 
significant legal and constitutional questions which this Committee should 
examine in greater detail. 

We strongly doubt that OMB has the statutory authority to regulate 
"political advocacy". The Office is empowered to audit government expendi- 
tures. Its authority to regulate advocacy has never been established. T^e 
regulation of advocacy in the nonprofit sector has traditionally been accom- 
plished by the direct action of Congress and by the IRS. If Congress would 
like to involve the CMB in this effort, it should provide the Office with 
legislative authorization. The Reagan Administration has soundly condemned 
administrative determinations which exceed statutory mandates. Yet, we 
believe the OMB proposals attempt precisely this. Apparently the principle 
espoused by the Administration applies only to selected administrative decisions. 

The Federation is also deeply concerned as to whether the Office of 
Management and Budget has given due consideration to the basic First Amendment 
rights to freedom of speech for those employed in the nonprofit sector. The 
restrictions on communications with elected and appointed officials embodied 
in the proposal strike no discernible balance between the need to insure the 
proper use of Federal money and the need to protect the constitutional rights 
of those in the nonprofit sector. For this reason alone, the Federation asks 
this Committee to do all in its power to stop the CMB proposal from going into 
effect. 

Conclusion 

The Federal Government has an obligation to both insure the proper use 
of Federal funds and to foster an environment in which rational debate on 
public policy can flourish. Over many years it has developed a variety of 
policies to effectuate both purposes. The OMB's proposals would contribute 
nothing of value in either area. In fact, they would succeed only in selec- 
tively silencing those who have much to offer elected and appointed officials 
at all levels of government. What is most distressing about the CMB's pro- 
posals is that the Office is undoubtedly aware of the consequences of its 
proposals and has proceeded despite that fact. It seems to view the nonprofit 
sector as adversaries. This is regrettable and misinformed. It is also an 



422 



open invitation to the formulation of government programs which will be 
wasteful, inefficient and incapable of fulfilling their intended purposes. 

Thank you for the opportunity to testify. 

Submitted by, 







ps Austin 
Vice President 

Federation of Protestant Welfare Agencies, Inc. 
281 Park Avenue South 
New York, NY 10010 
(212) 777-4800 



423 



Caplin 8c Drysdau; 

CHARTERED 
WA5H1NOTON. D. C 



Conunents of INDEPENDENT SECTOR 

on 

Proposed Revisions to OMB Circular A-122 



Summary 

INDEPENDENT SECTOR is a coalition of nearly 500 national 
voluntary organizations, foundations, and business corporations with 
significant contributions programs, united by a shared commitment 
to strengthen our national tradition of giving, volunteering, and 
not-for-profit initiative. 

INDEPENDENT SECTOR strongly opposes the proposed revisions 
to OMB Circular A-122. These rules proceed from the premise that 
federal grant funds should carry with them burdensome restrictions 

— for many organizations the equivalent of an outright prohibition 

— on grantees' First Amendment rights to lobby with privately 
contributed funds. Three independent and individually sufficient 
considerations require that this premise be rejected and the proposed 
rules withdrawn: 

1. The Proposed Rules Are Dnconstitutional . The government 
cannot condition the receipt of a government benefit on the surrender 
of a First Amendment right, except when the condition is narrowly 
tailored to protect a compelling state interest. The proposed 
requirement that grantees surrender their First Amendment rights to 
engage in privately-funded political advocacy imposes far broader 
restrictions on First Amendment rights than can be justified by any 
compelling state interest. Accordingly, this restriction must be 
struck down as an "unconstitutional condition" on the receipt of 
federal grant funds. 

2. OMB has No Authority To Issue The Proposed Rules . 
The proposed rules are also legally invalid because they are (a) 
outside the scope of the rulemaking authority delegated to OMB by 
Congress, and (b) inconsistent with clearly stated Congressional 
intent. 

3. The Proposed Rules Would Undermine The Ability Of 
Charities And Government To Meet Human Needs . To be effective 
partners with government in "'responding to human needs, voluntary 
organizations must be free both to provide services and to offer 
advice on how those services might be improved. Dnder the proposed 
rules they could do one or the other — but not both, except at a 
prohibitively high cost and with greatly reduced effectiveness. The 
substantial cost of this ill-conceived proposal would ultimately be 
borne by those persons whom both grantees and the government agree 
are in need and urgently need to be served. 



424 



Caplin & Drysdale 

CHARTERED 

WASHINGTON. D-C 



Description of INDEPENDENT SECTOR 

INDEPENDENT SECTOR is a membership organization comprised 
of 466 national voluntary organizations, foundations, and business 
corporations with significant contributions programs. (A membership 
list is attached.) These groups have joined together in INDEPENDENT 
SECTOR to strengthen our national tradition of giving, volunteering, 
and not-for-profit initiative. The organizations are as different 
as the American Heart Association, the United Negro College Fund, 
The Rockefeller Foundation, the National Council of Churches, the 
Shell Oil Companies Foundation, the American Association of Museums, 
The General Mills Foundation, the National Council of La Raza, Planned 
Parenthood, and Catholic Charities. The common denominator of this 
diverse mix is their shared determination that people will have 
greater opportunity to influence their own lives and the kind of 
society in which they live. 

Analysis of Proposed Revisions to OMB Circular A-122 

Congress has generally prohibited nonprofit organizations 
receiving federal grants or contracts from using any federal funds 
for lobbying or partisan political activities. These restrictions 
do not, however, apply to grantees' privately-funded advocacy activi- 
ties, even if conducted by the same personnel, and using the same 
facilities, involved in the grant activity. 

The cost accounting rules generally applicable to nonprofit 
grantees and contractors, as stated in OMB Circular A-122, currently 
contain no specific provisions implementing the restrictions on 



425 



Caplin Sc Drysdalz 

CHARTERED 
WASHINGTON. D. C 



grantees' political activities. Instead, under the general princi- 
ples of Circular A-122, grantees which engage in such political 
activities, or in any other prohibited activities, are simply denied 
reimbursement for the costs of those activities. 

On January 24, 1983, OMB proposed, as an addition to Cir- 
cular A-122, a special rule restricting the "political advocacy" 
activities of nonprofit grantees and contractors. Contemporaneously, 
the Department of Defense, GSA, and NASA proposed the addition of 
comparable rules to their contract and procurement regulations. 

Two aspects of the proposed rules have attracted intense 
criticism from nonprofit organizations, the business community, Mem- 
bers of Congress, and the General Accounting Office. First, contrary 
to the general principles of Circular A-122 applied to enforce all 
other restrictions on federal grant funds, the proposed rules would 
deny reimbursement for entirely proper grant activities simply 
because a grantee engages in privately-funded "political advocacy."* 
Second, the rules would establish an extremely broad definition of 
proscribed "political advocacy" activities. 

In response to the intense public criticism, OMB announced 
on February 25th that it will soon release for public comment a 
substantially revised version of the proposed rules. Since the 



1. More specifically, the proposed rules would deny reimbursement 
for proper grant-related costs of employees and facilities if the 
same employees or facilities were also involved in privately-funded 
advocacy activities. 



426 



Caplin & Drysdale 

CHARTERED 
WASHINGTON. D.C. 



principal effect of these revisions, according to OMB officials, 
will be to narrow the range of proscribed "political advocacy" 
activities, INDEPENDENT SECTOR will not comment on this aspect of 
the OMB proposal until it has had an opportunity to examine the 
revised rules. 

Accordingly, these comments focus on the other major fea- 
ture of the proposed rules, namely, the provisions that would deny 
grantees reimbursement for proper grant expenses because they engage 
in privately-funded advocacy activities. INDEPENDENT SECTOR is 
unalterably opposed to such a rule — that would penalize grantees 
for engaging in privately-funded advocacy activities — however 
broadly or narrowly that rule might be applied. The basis for 
INDEPENDENT SECTOR'S position may be summarized under the following 
three heads. 

1. THE PROPOSED RULE IS UNCONSTITUTIONAL 
The Supreme Court has repeatedly and consistently held 
that "even though a person has no 'right' to a valuable governmental 
benefit, and even though the Government may deny him that benefit 
for any number of reasons," it may not deny him the benefit "on a 
basis that infringes his constitutionally protected interests — espe- 
cially, his interest in freedom of speech." Perry v. Sindermann , 
408 U.S. 593, 597 (1972). Accord, Thomas v. Review Board , 450 U.S. 
707, 716-18 (1981); McDonald v. Paty , 435 U.S. 618, 626 (1978); El rod 
v. Burns , 427 U.S. 347, 355-59 (1976) (plurality opinion). 



427 



Capljn & Drysdale 

CHARTERED 
WASHINGTON. D.C 



This "unconstitutional conditions" doctrine applies with 
full force here. The proposed rules would condition grantees' right 
to reimbursement for entirely proper grant-related expenses on their 
surrender of the right to engage in privately-funded advocacy activi- 
ties — activities which are clearly protected by the First Amendment. 
Eastern R.R. Presidents Conf. v. Noerr Motor Freight, Inc. , 365 U.S. 
127, 137-38 (1961); Consolidated Edison Co. v. Public Service Commis- 
sion , 447 U.S. 530, 533 (1980). 

Under established constitutional principles, such a state- 
imposed restriction on freedom of speech is constitutionally permissi- 
ble only if it satisfies a two-part test: first, it must be justified 
by a compelling state interest, Consolidated Edison Co. , 447 U.S. 
at 540; and second, it must be "closely drawn to avoid unnecessary 
abridgment" of First Amendment rights. First National Bank v. 
Bellotti , 435 U.S. 765, 786 (1978). Accord, Central Hudson Gas & 
Electric Corp. v. Public Service Conunission , 447 U.S. 557, 565 (1980); 
Shelton v. Tucker, 364 U.S. 479, 488 (1960). The proposed rules can 
pass neither part of this test. 

No Compelling State Interest . Neither Congress nor the 
courts have ever suggested, nor does OMB assert, that the State has 
a compelling interest in restricting the use of grantees' private 
funds for advocacy activities. The governmental interest cited by 
OMB, rather, is the far narrower one of preventing the use of federal 
funds for advocacy activities. However, assuming for purposes of 
argument that this is a legitimate State interest, OMB has utterly 



20-644 O— 83 28 



428 



Caplin & Drysdale 
chartered 

WASH1NOTO*. IXC 



failed to show that existing rules are in adequate to protect this 
interest, and thus that the government has a compelling interest in 
imposing additional restrictions on grantees' advocacy activities. 

One would expect that rules imposing so great a burden on 
First Amendment rights would be proposed only after thorough and 
comprehensive analysis had demonstrated a serious compliance problem 
under existing rules. However, OMB has presented no comprehensive 
evidence showing widespread diversion of federal grants funds for 
prohibited advocacy activities. Instead, in response to repeated 
inquiries, OMB has identified only a small number of cases involving 
arguable violations of the existing restrictions. Its written testi- 
mony submitted to the Subcommittee on Legislation and National Secu- 
rity of the House Government Affairs Committee identifies only three 
such cases. 

According to OMB, the definitive support for its view that 
this small number of alleged violations is "the tip of the iceberg," 
is provided by studies conducted by the General Accounting Office. 
Yet, in his testimony to the Legislation and National Security Subcom- 
mittee, the Comptroller General disagreed. In response to a direct 
question as to the seriousness of the problem, the Comptroller General 
stated flatly, "the problem is not large." 

The Restrictions Are Not Narrowly Drawn . Further, OMB has 
failed to explain why broad restrictions on grantees' privately — 
funded advocacy activities — rather than clarification or more 
vigorous enforcement of the existing, far less burdensome 



429 



Caplin 8c Drysdale 

chaktereo 

WASHINOTON. O C 



restrictions on federally-funded advocacy — are needed to respond 
to the limited violations it has identified. Each of OMB's proposed 
justifications is untenable. First, OMB suggests that because of 
lack of clarity in the existing rules, many of the activities which 
it regards as violations are arguably permissible. Surely, the 
proper initial response to this problem is to clarify the current 
rules — not to reject them summarily in favor of far broader restric- 
tions. 

Second, OMB asserts that its proposed rules are needed 
because enforcement of the current rules is "exceedingly difficult." 
However, the Comptroller General, on whom OMB relies to support this 
assertion, has flatly disagreed. In his congressional testimony, 
the Comptroller General not only rejected the need for the broad OMB 
has proposed, but also suggested that the OMB proposal, itself, would 
create serious enforcement problems. 

Third, OMB argues that the existing rules provide no effect- 
ive sanctions because "the recovery by the government of a small 
allocable share of costs wrongfully billed to the government provides 
no deterrent to misconduct, and in many cases is so small as not to 
justify enforcement at all." This argument turns logic on its head; 
the very fact that the amount of funds diverted to advocacy is gen- 
erally so small is hardly a reason why the penalty must be dispropor- 
tionately large. 

The overbreadth of OMB's proposed restrictions on pri- 
vately-funded advocacy activities is further demonstrated by OMB's 



430 



Caplin & Drysdale 

CHARTERED 
WASHINGTON. D. C 



continued willingness to rely on far narrower restrictions to prevent 
all other misappropriations of federal grant funds. This disparate 
treatment clearly demands an explanation of why it is more difficult 
under current rules for government auditors to cope with diversions 
of grant funds for advocacy than for all other prohibited purposes. 
OMB offers none. Absent such an explanation, one can only conclude 
that OMB considers the public interest more gravely threatened by 
diversion of grant funds for political advocacy — an activity pro- 
tected by the First Amendment — than by outright theft, fraud, or 

other misuse of public funds. 

* * * 

In sum, the proposed rules simply cannot be justified as 
narrowly drawn to protect a compelling state interest. Accordingly, 
they violate grantees' First Amendment rights to engage in advocacy 
activities. 

2. OMB HAS NO AUTHORITY TO ISSUE THE PROPOSED RULES 
OMB cites no legal authority for issuance of the proposed 
rules. Careful legal analysis indicates that it has none. OMB's 
rulemaking authority, like that of other administrative agencies, 
is limited to that delegated by Congress. As stated in a recent, 
unanimous decision of the Supreme Court, 



431 



Caplin & Drysdale 

CHARTERED 
WASHINOTON. IXC. 



The legislative power of the United 
States is vested in the Congress, and 
the exercise of quasi-legislative 
authority by governmental departments 
and agencies must be rooted in a grant 
of such power by the Congress. 

Chrysler Corporation v. Brown , 441 U.S. 281, 302 (1978). The proposed 

rules are rooted in no such Congressional delegation of authority. 

Congress has not delegated to OMB any specific authority to regulate 

advocacy activities of nonprofit organizations receiving federal 

grants and contracts. Nor can authority for the proposed rules be 

found in Congress' general delegation of authority to OMB to issue 

rules to promote "efficiency" and "consistency" in the administration 

of federal grants and contracts. See , e.g. 41 U.S.C. §508. 

Rules issued pursuant to such a general delegation of 

authority are valid only if clearly and directly related to the 

purpose for which Congress delegated that authority. Liberty Mutual 

Insurance Company v. Friedman , 639 F. 2d 164, 169 (4th Cir. 1981). 

To uphold such rules, a court must "reasonably be able to conclude 

that the grant of authority contemplated the regulations issued." 

Chrysler Corporation v. Brown, 441 U.S. 281, 308 (1978). In making 

this determination, the courts have placed particular importance on 

whether the agency has held hearings, conducted studies, or otherwise 

developed a cogent administrative record demonstrating the 

relationship between the proposed rules and the purposes Congress 

sought to achieve in delegating the rulemaking authority on which 

the agency relies. Liberty Mutual, supra , at 170-71. Moreover, 



432 



Caplin & Drysdale 

CHARTERED 
WASHINGTON. IXC 



where First Amendment freedoms and other fundamental constitutional 
liberties are involved, the courts "construe narrowly all delegated 
powers that curtail or dilute [such freedoms]." Kent v. Dulles, 357 
U.S. 116, 129 (1958). 

When tested against these established legal standards, the 
proposed rules fall clearly outside OMB' s general rulemaking autho- 
rity. As noted above, OMB has not presented a detailed and compre- 
hensive set of findings to document the need for the proposed rules. 
Instead, the studies cited by OMB provide only fragmentary and incon- 
clusive evidence as to whether there is any compliance problem under 
existing rules, and no evidence or analysis to suggest that the pro- 
posed broad restrictions on grantees' rights to engage in privately- 
funded advocacy are rationally related to the efficient adminis- 
tration of federal grants. On the contrary, it is clear that the 
required duplication of staffs and facilities would increase, rather 
than decrease, the cost of federal grant activities. The obvious 
absence of any nexus between the proposed restrictions and OMB's 
proper regulatory objectives was underscored by the Comptroller Gen- 
eral in his testimony to the Legislation and National Security Subcom- 
mittee: 



CxPLIN & DRYSDALE 

CHARTERED 
WASHINGTON, D.C 



433 



Under the OMB proposal it is clear 
that there is no reasonable 



relationship between the proscribed 
activities and the requirement for 
forfeiture where the Government is not 
being charged in any way for those 
activities. We don't understand why 
engaging in political advocacy on 
one's own time is any different from 
engaging in any other nonreimbursable 
activity on one's own time. 
[Emphasis added.] 

This lack of rational relationship between the proposed 
rules and the Congressional purpose underlying the grant of rulemaking 
authority to OMB would invalidate the rules even if First Amendment 
rights were not involved. Because such rights are involved, thus 
requiring the courts to construe more narrowly OMB's delegated autho- 
rity, the inadequacy of that authority to support the proposed rules 
is yet more certain. 

Moreover, the proposed rules are also invalid because they 
are inconsistent with clearly stated congressional intent. When 
Congress has explicitly addressed the question, it has made clear 
that in imposing restrictions on the use of federal funds for advocacy 
activities, it did not intend to restrict the privately-funded advo- 
cacy activities of grantees. 2 Similarly, while imposing restrictions 



2. For example, in discussing the 1967 amendments to the Economic 
Opportunity Act of 1964, which initially imposed the restrictions 
now contained in section 656 of the Head Start Act, 42 O.S.C. 9851, 
the conference report states that, 

Where a State or political subdivision, or a 
public or private non-profit agency, carries on 
programs assisted in whole or in part, under 



434 



Capun & Drysdale 

CHARTERED 
WASHINOTON, D C. 



on legislative lobbying, Congress has generally not restricted gran- 
tees' rights to contact executive agencies. On both points, there- 
fore, the proposed rules are inconsistent with clear manifestations 
of Congressional intent. The Supreme Court has consistently held 
that rules which are so clearly "out of harmony with [Congressional 
intent]," are "a mere nullity." Manhattan General Equipment Co. v. 
Commissioner , 297 U.S. 129, 134 (1936); Dixon v. U.S. , 381 U.S. 68, 
74 (1965); U.S. v. Larinoff , 431 U.S. 864, 873 (note 12) (1977). 

3. THE PROPOSED RULES WOULD UNDERMINE THE ABILITY OF 

CHARITIES AND GOVERNMENT TO MEET HUMAN NEEDS 

This Administration has repeatedly stressed its commitment 
to the importance of public-private partnerships in meeting human 
needs. We share that commitment, and the fundamental premise on 
which it rests, namely, that the private sector — particularly pri- 
vate voluntary organizations, with their deep roots in the community 
and their long traditions of community service — often have a clearer 



(cont.) 

this Act, the limitation of [this section] does 
not apply to any other activities they may carry 
on with funds not provided under the authority 
of the act. Similarly, officials and personnel 
of such agencies are subject to the limitations 
of this section only as to that portion of their 
time for which they receive compensation 
provided directly or indirectly under the 
authority of the Act . 

H. Conf . Rpt. No. 1012, 1967 U.S. Code Cong. & Ad. News, at P. 2598, 
90th Cong., 1st Sess. (Emphasis added.) 



435 



Capijn Sc Drysdale 

CHARTERED 
WASHINOTON. D. C- 



understanding than does government of community problems and how 
best to address them. 

However, public-private partnerships cannot work 
— indeed, the very concept becomes incoherent — if government seeks 
to build a wall preventing communication between the public and pri- 
vate partners providers. A vital partnership must be an equal 
partnership. The private "partners" must be free — as they would 
not be under the proposed rules — to offer advice as well as to 
shoulder the day-to-day responsibilities of providing services. 

OMB claims to accept this premise, and asserts that its 
proposed rules would not preclude such an equal partnership. It 
suggests that private organizations could continue both grant-funded 
activities and privately-funded advocacy activities, and would 
"merely" be required to conduct these activities with separate staffs 
and facilities. However, this suggestion of a total physical separa- 
tion of grant and advocacy activities is so patently unworkable as 
to seem disingenuous. 

Separation Would Often be Impossible . Small local organi- 
zations, often with a paid staff of only one or two, comprise a large 
and important part of the voluntary sector. For virtually all of 
these small organizations, creating separate staffs, much less sepa- 
rate facilities, for advocacy and all other program activities would 
be an absolute impossibility. These organizations would thus face 
the stark choice of abandoning one or the other of these activities. 



436 



Caplin fle Drysdale 

CH ARTE NED 
WASH1NOTOM. &C 



Separation is equally impossible for key personnel of lar- 
ger organizations. For example, an executive director would have 
no choice but to stay on one side or the other of the wall OMB seeks 
to erect between advocacy and other program activities. Whichever 
side were chosen, an executive director so constrained could hardly 
provide effective overall leadership for his or her organization. 

Separation Would be Wasteful . The duplication of staff 
and facilities suggested by OMB would also be manifestly wasteful. 
Both government and private resources that would otherwise be avail- 
able to meet basic human needs would be needlessly spent hiring two 
staffs, paying for two copying machines, renting two offices, and 
duplicating every other resource required for the organization's 
activities. At a time when we are painfully aware of the limited 
resources available to meet social needs, such waste would be uncon- 
scionable. That a proposal entailing such waste should come from 
OMB is simply incredible. 

Separation Would Mean Ill-informed Government Decisions . 
An administration which recognizes as a fundamental weakness of the 
federal government its remoteness from the social problems it seeks 
to address should be concerned with providing government 
decision-makers with more information — not less — from the service 
providers in the front-line trenches. Yet under the proposed rules, 
the only employees of a nonprofit grantee who could discuss the grant 
program with government officials, or share their views on the program 
with the public, would be those employees who have absolutely no 



437 



Ca_plin & Drysdale 

CRAJtTERZD 
WASHINOTON. IXC 



involvement with the grant activities. Nor could these non-grant 
employees first solicit the views of their grant-supported collegues 
without violating the strict separation that the proposed rules would 
require. Thus, both government officials and the public would be 
denied the advice of those persons with the most intimate knowledge 
of a grant program's strengths and weaknesses. The inevitable results 
would be ill-informed decisions, ineffective programs, and, most 
importantly, needlessly unmet human needs. 

Conclusion 

The proposed rules are unconstitutional and outside OMB' s 
rulemaking authority. Far from strengthening the political process, 
they would seriously undermine it. Instead of promoting public-pri- 
vate partnerships, they would frustrate both public and private 
efforts to meet urgent human needs. 

In his testimony to the Subcommittee on Legislation and 

National Security, the Comptroller General stated that, 

We think that any regulations go 
too far ... when they require a 
Federal contractor or grantee to 
forfeit reimbursement for legi- 
timately incurred expenses 
merely because the contractor or 
grantee has engaged in perfectly 
proper political advocacy with 
non-Federal funds. 

INDEPENDENT SECTOR agrees, and strongly urges that the 

proposed amendments to Circular A-122 be withdrawn. 



438 



Statement of Charles V. Bergstrom 

Lutheran Council in the USA 

To the House Committee on Government Operations 

Subcommittee on Legislation and National Security 

on the Issue of Proposed Amendments to the 

Office of Management and Budget Circular A-122 

March 4, 1983 



My name is Charles V. Bergstrom. I serve as Executive Director of the 
Office for Governmental Affairs, the Lutheran Council in the U.S.A. On behalf 
of the Council, I express appreciation to the Chairman and to members of the 
Subcommittee for conducting the hearing on March 1, 1983, and for providing 
the opportunity for the Lutheran Council and its constituent bodies represented 
by our office. I am speaking on behalf of three church bodies of the Lutheran 
Council : 

The American Lutheran Church, headquartered in Minneapolis, 
Minnesota, composed of A , 900 congregations having approxi- 
mately 2.4 million U.S. members; 

The Lutheran Church in America, headquartered in New York, 
New York, composed of 5,800 congregations having approxi- 
mately 2.9 million members in the U.S.; and 

The Association of Evangelical Lutheran Churches, head- 
quartered in St. Louis, Missouri, composed of 270 congre- 
gations having approximately 110,000 U.S. members. 

We share in the opposition expressed by members of your committee, other 
members of Congress, and the long list of witnesses who appeared on March 1. My 
statement will be very brief, since the Lutheran Council in the USA is a member 
of the Independent Sector. The president of the Independent Sector, Mr. Brian 
O'Connell, appeared as a witness at the March 1 hearing of your Subcommittee; 
in his written report he specifically has labeled the 0MB Circular A-122 amend- 
ments as "unnecessary, unworkable, and unconstitutional." We concur. 

In 1979, the Lutheran Council convened a consultation on church and govern- 
ment, and in May of that year adopted a statement concerning the churches' 
ministry of advocacy. A copy of that statement is attached. It presents a 
very clear theological basis for church-government interaction and for advocacy. 
I ask that you note particularly the emphasis on the need for such interaction 
for the common good of all, for the alleviation of poverty, and the continued 
strengthening of social justice. I quote the following from that 1979 statement 
as directly related to our oppositions to 0MB Circular A-122: 

"That the Lutheran Council urge the participating churches 
to object when governmental regulation of church-related 
educational institutions and social service agencies violates 
due process, exceeds statutory authority or infringes on 
First Amendment guarantees; 



439 



"That the Lutheran Council encourage the participating 
churches to join, when possible, with other members of 
the voluntary sector in objecting to unreasonable 
regulations ; 

"That in order to maximize the access of citizens in 
our pluralistic society to education and social services 
from agencies and institutions of their choice the Lutheran 
Council encourage the further exploration and assessment 
of all constitutional means of government support for a 
variety of social and educational services at all levels, 
whether public, private, or church-related." 

We oppose the OMB amendments to Circular A-122 and we will oppose any 
revised editions. There is no need for it and it is a mockery in the face of 
the administration's call upon the voluntary sector for help in serving people. 
Surely it is clear that no great misuse of government funds has occurred. The 
nonprofit voluntary sector's record is one of dedication. 

We believe that the religious community is in a unique position to provide 
assistance — both privately and governmentally funded — to those in the society 
who are in the greatest need, both at home and abroad. We are committed, 
because of our religious and moral beliefs, to serve all of God's people and 
to be the servant of no special interest groups. We advocate justice on behalf 
of those who are powerless and in need — not ourselves. 

The implementation of the proposed amendments would hamper our agencies 
severely in our ministries, and we urge that the proposed amendments be with- 
drawn. 



440 



CHARIIS W STrWART 



ihom*s i russeu . 



MACHINERY and ALLIED PRODUCTS INSTITUTE 

1200 EIGHTEENTH STREET. N.W. WASHINGTON. D.C. 20036 202-331-8430 

March 2, 1983 



(RED E SHAND 



Mr. John J. Lor dan 
Chief, Financial Management Branch 
Office of Management and Budget 
Washington, DC 20503 



Dear Mr. Lordan: 



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JAMES F HERE Choi.mon 

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A WIUIAM CAIDER fr„nU«i 



ROBERT CIZIK 

W PAUL COOPER 



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DONAlD «_ MElVlllE ».»uoW 

GERALD B MITCHELL 
JOHN C MOtLEY 



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JAMES R STOVER tnOtmi 

WIUIAM G .onBERG Oio.rman 

«. J. WEAN, Jl Chrm and rW 

JOHN A. YOUNG Pn.-d.nl 



Proposed Revision to 0MB Circular A-122 
Relating to Pol it ical Advoc acy 

The Machinery and Allied Products Institute (MAPI) wishes to 
respond to the notice in the Federal R egister of January 24 inviting 
comments on a proposed revision t